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2 Disclaimer With reference to the contents within this document, the Gauteng Growth and Development Agency (GGDA), the South African Property Owners Association (SAPOA) and Urban-Econ Development Economists claim that the following document serves only as a point of reference and not as a direct indication of the cost of doing property related businesses within the identified study areas. All data was acquired from published municipal documents as well as from direct municipal sources and all efforts were taken to ensure that the data was accurate and properly representative of these municipalities. Certain limitations to this study were identified which reinforces the above statement that that the information detailed is to be used as a point of reference and not as actual. No warranty or representation is made as to the accuracy thereof and this report is submitted subject to errors, omissions, and subsequent and future changes. Finally, the municipalities that are compared differ in size and context, and subsequently, considering the comparative nature of this document, all figures and findings must not be viewed in isolation to the context and provided written content. 1

5 3.19 Impact of Surcharges on Development Municipal Responsibilities and Challenges Approach Analysis and Findings Degree of Suitably Zoned Land Administration Effectiveness Regulation Development of New Infrastructure and Maintenance Summary Gauteng Summary Property Developers: Key Analysis Approach Key Indicators Town Planning Costs Administration Service Rating Town Planning Costs Administration Summary Summarised Comparative profile Economic Indicators and performance Average Annual GVA Growth Rate for all Study Areas Average Annual Growth Rate of the POPULATION FOR all Study Areas Average Annual Growth Rate of the Disposable Household Income for all Study Areas Development Implications Overall Study Observations

10 1. INTRODUCTION Urban-Econ has been appointed by a joint initiative of SAPOA and GGDA to conduct a study that comparatively investigates the municipal services costs of property related business in select municipalities within the Gauteng Province as well as other municipalities in which SAPOA members are most active. The study serves as a benchmark to determine both the costs 1 of doing propertyrelated business; as well as to assess possible limitations posed by municipalities that impact development progress and feasibility. The study was motivated by concerns raised by stakeholders and developers within the property development industry as well as from municipal representatives. The concerns are centred on the need for a comprehensive guide and assessment of municipal services costs impacting and constraining development. It is important to refer to the guiding legislation on municipal tariffs and cost which is encompassed in Circular No. 59 for the Municipal Finance Management Act (Treasury, 2012) adapted as follows: When municipalities and municipal entities revise their rates, tariffs and other charges for their budgets and MTREF, they need to take into account the labour and other inputs costs of services provided by the municipality or entity, the need to ensure financial sustainability, local economic conditions and the affordability of services taking into consideration the municipality s indigents policy. Municipalities must also take into account of relevant policy developments in the different sectors. In considering changes in property rates, municipalities need to take cognisance of local economic conditions such as the down turn in the property markets, trends in household incomes and unemployment. Excessive increase in property rates and other tariffs are likely to be counterproductive, resulting in higher levels of non-payment and increased bad debts. National Treasury continues to encourage municipalities to keep increase in rates, tariffs and other charges as low as practically possible. For this reason National Treasury continues to require that municipalities must justify in their budget documentation all increases in excess of the 6% upper boundary of the South African Reserve Bank s inflation target. (Treasury, 2012) It is not the purpose of this document to investigate justification of the individual municipalities in terms of their rates tariffs and fees, but rather to source and assess the current level of fees charged within the different municipalities and to provide a comparison. The purpose of the comparison is to identify areas where specific fees are more expensive and others where they are more affordable. The identification could inform possible focus areas for incentive development or negotiations between developers and municipalities to assist development promotion and investment retention as far as possible. It is important to note the different objectives of the project partners. It is understood that the GGDA s motivation for the study is to improve the competitiveness of Gauteng municipalities by ensuring fees within these municipalities are market related and fair, as well as to inform possible interventions to promote municipal competitiveness. On the other hand, SAPOA, as a representative 1 It is important to note that the true cost for development within each municipality has not been calculated as there are too many variables to consider. This is as each development will have varying circumstances. Therefore, the costs must be taken as a guideline, and not as a real value. 9

11 of property owners and a key role player in the property industry, it is understood that their objective is to understand the current level of fees and charges and to find possible interventions or lobbying information to use in future discussions and interactions with municipalities. Ideally this document should be the first of a series to be annually updated. Therefore, the time series of different rate figures could be tracked over a period of time to develop a useful index tool. When comparing the services costs of development in municipalities, the application fees, tariffs and development contributions and surcharges for property development have in general been challenging to identify. Therefore, an investment guideline for property developers and role players in the property industry, and municipal representatives has been developed. It assists in directing proposed development processes using a cost comparison, compares town planning application processes, and assesses causes for the concerns raised at a municipal level. The first phase of the study analyses the municipal service costs in terms of fees and rates of development for the focus study areas. The final phases provide context in terms of the challenges municipalities face, with the purpose to provide more clarity on the factors that inflates costs, as well as those that stymy development within the delineated municipalities. To conclude, a comparative matrix provides a visual illustration of the services costs and challenges of doing property related business within all 18 study areas. 1.1 STUDY AREAS The study area is comprised of 18 municipalities. The municipalities selected represent all districts and metro municipalities of the Gauteng province. The study was envisioned to also include two prominent urban property markets of each province; however, budget and time limitations resulted in narrowing the focus municipalities to the 18 municipalities illustrated in Table 1-1 and Figure 1-1. Table 1-1: Municipal Study Areas City/Town Municipality Province 1 Johannesburg City of Johannesburg Gauteng 2 Pretoria City of Tshwane Gauteng 3 Kempton Park Ekurhuleni municipality Metropolitan Gauteng 4 Krugersdorp West Rand DM (Mogale City) Gauteng 5 Vanderbijlpark Sedibeng DM (Emfuleni ) Gauteng 6 Cape Town City of Cape Town Western Cape 7 George George Municipality Western Cape 8 Pietermaritzburg Msunduzi Municipality KZN 9 Nelspruit (Mbombela) Mbombela Municipality Mpumalanga 10 Emalahleni (Witbank) Emalahleni Municipality Mpumalanga 11 Port Elizabeth Nelson Mandela Metropolitan Eastern Cape 12 East London Buffalo City Metro Eastern Cape 13 Polokwane Polokwane Municipality Limpopo 10

12 City/Town Municipality Province 14 Bloemfontein Mangaung Municipality Free State 15 Kimberley Sol Plaatje Municipality Northern Cape 16 Upington //Khara Hais Municipality Northern Cape 17 Rustenburg Rustenburg Municipality North West 18 Durban ethekwini Metro KZN These study areas are further delineated in Figure 1-1 which visually illustrates the municipalities relative to one another. Figure 1-1: Locality Map Source: Urban-Econ (2012) The municipalities were selected on the basis of priority in terms of the areas where SAPOA members are most active and where the development environment is regarded as vibrant. As stated before, a limited budget and timeframe in which to gather information and provide an analysis influenced the selection. Priority was determined by the importance of the municipality in terms of current development. These municipalities therefore provide a baseline for analysis as a starting point. It is envisioned that for future studies the selected municipalities will be expanded. Recommended areas for future investigation and analysis are: Richards Bay municipality 11

13 Lephalale municipality Bitou local municipality Giyani municipality Thohoyandou municipality City of Matlosana Maluti-a-Phofung municipality Kuruman municipality These areas have been identified as locations of increased property investment and interest for development in the current market context. 1.2 OUTCOME OF THE STUDY The key purpose of the study is to develop a situational baseline analysis of the delineated study areas, and to provide future developers and stakeholders with knowledgeable comparative information when making investment decisions. Due to the nature of the information the study cannot be used to inform financial calculations of any specific proposed development as variables differ by type, site and location and therefore it needs to be viewed generally. A two part guideline will be developed that will: 1. document the municipal services costs that contribute to the development of residential, commercial and industrial property, and 2. create a model that measures all municipalities competitiveness in terms of the facilitation of property development. The report outlines the service costs that contribute to the establishment of residential, retail, office and industrial property for each of the delineated municipalities. Furthermore, the process by which municipalities set these costs is investigated. These cost components include: EIA, and township establishment costs Municipal application fees for zoning and subdivision Building Plan fees Connection fees for water, sewerage and electricity Consumption charges for water, sewerage and refuse removal Consumption rates for electricity Vacant land rates for residential, commercial and industrial zoned land Property rates for residential, commercial and industrial developments Rebates for vacant land and property rates As a summation of the results, a Comparative Matrix was concurrently created to indicate, compare and relate the range of service costs of each municipality in context to the other studied municipalities. 12

14 This chapter on tariff costs is followed by a section on the surcharges prevalent when costing the development of the four scenarios within each municipality. Both the surcharges and applicable additional charges for services for each municipality are highlighted. The impact on development costs for each municipality upon the inclusion of surcharges is indicated. The report further details and analyses the data gathered from the municipal and developer surveys. The information has been gathered to provide a comparative analysis from the perspectives of both municipal respondents and developers. These indicators include: The extent and availability of suitably zoned land The effectiveness and efficiency of administration within all study areas The degree to which overregulation is prevalent and whether property development is consequently hindered The extent of infrastructure capacity and development A final Comparative Matrix incorporating the data gathered from all phases was detailed into a single visual format. 1.3 PROJECT APPROACH Relative to the purpose of the study conducted, it was necessary to develop a set of development scenario s which would be applied to each municipality under evaluation. These scenarios would encompass generic predominant development typologies, being: medium-density residential, retail centre, commercial office and industrial developments to assess the costs for the different key urban land uses. For purposes of continuity, the scenarios match the scenarios developed for the previous municipal cost assessment conducted for prominent municipalities in Kwa-Zulu Natal to enable comparability. Table 2-1 provides a comprehensive indication of the development scenario s being applied. The key concerns and motivation for the study was with regard to the determination of tariffs and municipal actions that hamper development. Concurrently, the relevant Acts that guide municipal budgets and tariff setting have been assessed for this financial year. These being: Local Government: Municipal Systems Act No. 32 of 2000 Local Government: Municipal Finance Management Act No. 56, 2003 Municipal Finance Management Act Circular No. 59, of the Municipal Finance Management Act No. 56, 2003 Furthermore, the study was conducted from a land use perspective as opposed to a financial analysis. This is due to the limitations that are outlined below. Because the focus of the study was to determine the current cost profiles, and not to assess the economic impact of financial losses caused by high tariffs or delayed application approvals, a comprehensive and true representation of the 13

15 overall financial losses or gains was not included in the study. Essentially, there is not sufficient data to provide an assessment. Due to the numerous variables relating to the cost of development for each scenario a generalisation of information was required to enable a comparison of services costs. The generalisation required an assumption that land and building costs were assumed constant throughout all municipalities. Similarly, a standard size for connections relative to development type and basic consumption rates were applied 2. Consequently, the land and build costs, connection fees 3 and consumption charges are estimates based on the standardised scenarios enabling comparisons across all study areas. The initial phases of the study involved the sourcing of all the rate and tariff policies for the financial year starting in July The majority of the development costs were sourced from these documents and by making calculations as per the prescribed formulae stipulated on the policies. Due to the fact that the policy document did not sufficiently address all the cost aspects of the assignment and also due to some ambiguity on the formulae, specialists consulted with municipal respondents in relevant departments of each municipality to fill data gaps and to ensure an accurate understanding of the formulae as published in the municipal policies. To achieve this, a cost survey questionnaire was developed and directed to the relevant departments and respondents within each municipality. The latter phases of the study comprised of two surveys, one directed to property developers identified and conducted by SAPOA, and the other to municipal respondents conducted by Urban- Econ specialists. Each survey was designed to attain information that assisted in understanding the process of property development within each municipality, including aspects such as turnover time of applications and whether overregulation stymied development. During this phase of information gathering, explanations of tariff costs, as far as possible, for all study areas were gathered and applied to the development examples. These costs are assessed and compared in the ensuing sections. In consideration of the comparative aim of this study, a detailed figure was developed to compare and summarise the findings of this study. With regard to outstanding information, because minimal data is still outstanding, it is the view of the specialists that the current profile presented in this document are as accurate as possible under the limitations posed by the current structure. It is however important to note the following limitations as described in the subsequent sub-section. 2 The connection sizes supplied by SAPOA to consultants for the study Detailing the Municipal Tariff Cost of Property-Related Business in KZN were allocated to the delineated development scenarios for this study. Furthermore, in order to develop a reliable comparison for consumption charges, a generic consumption rate for water, electricity, refuse removal and sewerage consumption was applied across all developments. This therefore allowed the specialists to provide a baseline comparative cost analysis for each municipality. 3 For the majority of municipalities, connection fees are dependent on numerous variables, and will therefore only be available upon the submission of building plans and concurrent site visit. 14

16 1.4 LIMITATIONS OF THE STUDY Relative to both the qualitative and quantitative data that was required for this study, there were limitations to the study to be noted and understood in order to have a contextual understanding of the results. Firstly, as aforementioned, the number of municipalities analysed was minimised due to the limitations in terms of the budget and timeframe for data gathering. This is on account of the information within the report which is relevant from the beginning to the end of the financial year. There was similarly insufficient financial capacity to warrant the analysis of increased municipalities. Data sourced for the study was reliant on verbal explanations by different officials, of which not all were knowledgeable of the entire developmental process but only have an understanding of the individual component with which they work. Due to the fact that different respondents had to be consulted for different development cost components, a margin for error must be allowed, being caused by differences in interpretation and understanding of the various respondents. Essentially, responses were subjective and inconsistent due to the subjective interpretation of policy. However, the information gathered does provide a multi-sided perspective with the respondents widely consulted to provide the most reliable representation possible. A limited interest and response rate was observed from developers on the developer s survey. Due to limited and unrepresentative information, a number of municipalities were omitted from the analysis concerning the section of customer satisfaction. However, adequate data was available to warrant a credible analysis of the main metros for the Gauteng province to provide comments. It should also be noted that decision making on tariff hikes and rate increases are developed by the financial budget department and approved by the council. Therefore the officials who were interviewed were not the decision makers and were unable to clarify the rationale of the budget departments in terms of the tariff hikes and fees charged. Concerning the tariffs that was perceived by the researchers as above market, when consulted, the respondents indicated that their mandate is to implement the decisions from the top and were therefore unable, or not permitted, to provide explanations. This had a limiting impact on the transparency of cost calculation methods and decision making which again limited the capacity of the research to provide detailed recommendations on possible mitigations. The costs deemed questionable have been highlighted throughout the report. Concerning the final summarised comparative matrix, it must be stressed that the information is dynamic in nature with a wide variety of influential variable factors which is difficult to illustrate accurately in a comprehensive scoring system. By scoring the performance of the different municipalities, the data was essentially simplified and thus, due to the way in which the results for the comparative matrix s were calculated, it is important to note that the illustration of most expensive or cheapest is potentially skewed. Essentially, the number of municipalities being compared, and the vast range of cost components to be rated, provides a limitation of accurately conveying whether a municipality is expensive or cheap. This is as the vast range of services 15

17 costs may place a municipality deemed as expensive as an average scorer. Therefore, the matrix should not be viewed in isolation, but the content and analysis s of all indicators need to be read alongside the matrixes. Finally, municipalities are not all identically comparable as they do not fall within the same category in terms of size (area), population, economic activities, availability of resources etc. The fact that some are metropolitans and others are local municipalities already illustrates that municipalities could not be commonly compared. The difference in resources available may therefore contribute to the overall scores received. Essentially, in theory there is less capacity within the local municipalities as opposed to Metropolitans. To date, some municipal information is still outstanding due to unwillingness or inability of some municipalities to participate and respond to repeated queries from the specialist team. This aspect and the limitations it poses to development will be further discussed in the recommendation section. 1.5 REPORT OUTLINE The report follows the following structure: The cost of property development» Regulatory determinants towards the setting of tariffs» Application fees» Connection fees» Consumption charges» Land rates Deliverable: Comparative Matrixes Surcharges» Development surcharges» Additional surcharges Deliverable: The impact of surcharges on development Municipal responsibilities and challenges» Development capacity» Administration efficiency» Infrastructure capacity Deliverable: Summary of all study areas and summary of Gauteng metro s and municipalities Developer Survey» Town Planning» Costs of development 16

19 2. KEY ANALYSIS AND COST COMPARISON OF MUNICIPAL SERVICES This section provides a comparative analysis of the municipal services costs relating to residential, retail, commercial and industrial developments in the delineated municipalities. Because the methods used by municipalities vary, for the purpose of a comparison, a standard case scenario of town planning description has been developed in order to standardise the costs. Table 2-1 displays the examples applied in the comparative analysis. Table 2-1: Development Scenarios used in the Comparative Analysis Type of Development Description of the Development Medium Density Residential Developments 20 unit townhouse sectional title duplex (100m² each) on a 0.8ha site Retail Centre Regional Retail Centre (GLA of m²) on a 10ha site Commercial Office 8 floor high-rise office tower block (1 000m² per floor) on a 3200m² site Industrial Large industrial factory (10 000m²) on a 2.5ha site To facilitate a clear analysis and towards ease of comparison, this section is arranged into a four-part succession of the interrelated cost indicators. Firstly, all the application fees relevant to town planning are listed and analysed. This segment is followed by the costs of connection fees for water, sewerage and electricity. The costs for consumption of water, electricity, sewerage and refuse are detailed next. The final section of related tariffs provides the costs for vacant and developed land rates. Furthermore, in order to provide a baseline for the services costs analysis, it is necessary to recognise how municipalities determine the tariffs each financial year. This is detailed in the section below prior to the costs analysis. For simple analysis and illustrative purpose, a standard approach will be followed with the cost per indicator for each municipality and development type indicated in a table. In conjunction with the purpose of the study, the municipality with the highest cost per development type is highlighted, therefore facilitating a clear-cut comparison. Furthermore and towards the ease of evaluation, the most affordable and expensive municipality per indicator will be highlighted. The information from the data collection process has been inputted into the appropriate categories and analysed. Detailed Excel Spread sheets which provide an insight into the data collection and cost comparison process are available for perusal upon request. Furthermore, the tariff schedules 18

20 wherefrom the costs were derived are attached as Annexure E. The service costs which were not attainable from these schedules were assembled from municipal respondents. 2.1 REGULATORY DETERMINANTS OF RATES AND TARIFFS Prior to the detailed analysis and representations of the municipal services costs of development, it is central to note how municipalities are directed and guided towards determining the tariffs that they set each financial year. A basic overview of the regulations which guide municipal budgets and setting of tariffs is discussed below. As aforementioned, the regulatory documents that are referred to are the: Local Government: Municipal Systems Act No. 32 of 2000, Local Government: Municipal Finance Management Act No. 56, 2003 (MFMA 2003); and, Municipal Finance Management Act Circular No. 59, of the Municipal Finance Management Act No. 56, Overall, the aim of these Acts is to ensure that municipalities, when developing their budgets and systems of processes, are aligned with the national aims and strategies previously determined by government. Thus, it is ensured that an integrated system of processes is achieved. To summarise, the Municipal Systems Act (2000) is part of a series of legislation that aims to empower local government to fulfil its Constitutional objectives. Essentially, the Act is intended to: provide for the core principles, mechanisms and processes that are necessary to enable municipalities to move progressively towards the social and economic upliftment of local communities, and ensure universal access to essential services that are affordable to all; to define the legal nature of a municipality as including the local community within the municipal area, working in partnership with the municipality s political and administrative structures; to provide for the manner in which municipal powers and functions are exercised and performed to provide for community participation; to establish a simple and enabling framework for the core processes of planning, performance management, resource mobilisation and organisational change which underpin the notion of developmental local government; to provide a framework for local public administration and human resource development; to empower the poor and ensure that municipalities put in place service tariffs and credit control policies that take their needs into account by providing a framework for the provision of services, service delivery agreements and municipal service districts; to provide for credit control and debt collection; to establish a framework for support, monitoring and standard setting by other spheres of government in order to progressively build local government into an efficient, frontline development agency capable of integrating the activities of all spheres of government for the overall social and economic upliftment of communities in harmony with their local natural environment; to provide for legal matters pertaining to local government; and to provide for matters incidental thereto. (Local Government: Municipal Systems Act, 2000) Concerning the study, it is identified in the Municipal Systems Act (2000) that the rights and duties of municipal councils towards determining the fees charged for services, applicable surcharges, rates on property and other levies and taxes. Relative to the services provided by the municipality, it 19

21 is stipulated in section 73(1)(a), (c) and (e) that services must be equitable and accessible, financially sustainable and regularly reviewed with a view to upgrading, extension and improvement (Local Government: Municipal Systems Act, 2000). The Act (Local Government: Municipal Systems Act, 2000) further provides the due course concerning municipal tariffs. This is particularly significant considering the study. It is stipulated in section 74(1) that the implementation of the tariff policy on the levying of fees must comply with the provisions of the Act and all applicable legislation one of these being the Municipal Financial Systems Act of 2003 (Local Government: Municipal Systems Act, 2000). Furthermore, section 74(2)(d) states that all tariffs must reflect the costs associated with rendering the service, including capital, operating, maintenance, administration and interest charges (Local Government: Municipal Systems Act, 2000). Section 94(1) particulates the regulations and guidelines that the Minister of the Treasury may provide to regulate, which are amongst others: Limits on tariff increases. The criteria that municipalities need to take into account when imposing surcharges on tariffs for services. (Local Government: Municipal Systems Act, 2000) The regulations and guidelines that the Minister is entitled to present are projected within the Municipal Finance Management Act (2003) and concurrent Circulars. Subsequently, the Municipal Finance Management Act (2003) sets to: secure sound and sustainable management of the financial affairs of municipalities and other institutions in the local sphere of government; to establish treasury norms and standards for the local sphere of government; and to provide for matters connected therewith, (Local Government: Municipal Finance Management Act, 2003). With regard to the setting of municipal tariffs, it is determined that the Minister may prescribe inflation projections and uniform norms and standards, as well as to ensure that in terms of the Constitution, a municipality does not materially prejudice in relation to tariff setting and inflation. These norms and standards are provided to municipalities in the form of a Circular. For each financial year, relative to the Municipal Finance Management Act (2003), the National Treasury develops a Circular which provides a baseline and guide for all municipalities upon which to develop their budget. This guideline essentially monitors and sets a prescribed or suggested inflation rate for tariffs, and the development of operating and capital budgets relative to the extenuating factors that impact the GDP. Fundamentally, the circular takes into account the national policies and strategies that direct the goals of the country towards foreign investment, job creation and service 20

22 provision etc. and concurrently provide inputs into the municipal budgetary process to ensure the aims of national policies are met. As indicated, the circular provides further guidance to municipalities and municipal entities for the preparation of their 2012/13 Budgets and Medium Term Revenue and Expenditure Framework (MTREF), (Treasury, 2012) For the 2012/13 financial year on which this study is based, it is noted in the Circular No. 59 (Treasury, 2012) that in the context of the unsettled international economic conditions, despite the resilience that the South African economy has demonstrated, there is no guarantee that the recovery which the world economy has begun to show, will continue. Similarly, it is specified that at its best, the recovery will be slow. Therefore, municipalities must still adopt a conservative approach when projecting their expected revenues and cash receipts (Treasury, 2012). In concurrence, to be implemented on the 1 July this 2012/2013 financial year, municipalities were advised to budget for a 5% cost-of-living increase. This report cannot comment on whether the increases of municipal fees and tariffs did adhere to the increased recommendation of 5% due to the fact that the cost assessment undertaken is in essence a snapshot of a certain point in time and no comparable historic information in the appropriate format is available. However should this study be updated on an annual basis, trend information will become available and the municipal services costs could be tracked over a certain period. With regard to the cost indicators specified below, the determinations of these tariffs were not only to take the above guide into account, but similarly the following: Inflation forecasts estimated at 5.9% for the 2012/13 financial year, and 5.3% and 4.9% for the 2013/14 and 2014/15 financial years respectively need to be considered in conjunction to the advised 5% increase budgeted from cost-of-living. The Eskom prices of bulk electricity to increase by 13.5%. Concurrently, NERSA set a guideline of 11.03% increase for municipalities. The focus of government has shifted to capital investment in public-sector infrastructure projects, which through targeted interventions will therefore reduce the cost of doing business. Essentially, the composition of municipal spending needs to move away from consumption items to areas of spending that more directly support economic growth and service delivery. Municipalities need to consider the allocations and provision for national grants when determining their budget and rates, as well as capital projects. It was further stipulated that concerning budgetary compliance and benchmarking, benchmark budget hearings during April and May of this year (2012) were commenced to assess the degree to which the budgets were realistic, sustainable and relevant. Furthermore, it was noted by the Minister that considering investment and management issues, municipalities vary relative to context, and thus the issue of setting a benchmark is inappropriate. An average performance for all municipalities relative to comparative size and function will however be assessed to note whether management of funds and capacity are irregular. 21

23 Therefore, concerning the study, because the indicated cost-of-living has increased by 5%, being influenced by the CPI inflation, the implications these cost-related guides may have had on the setting of the tariffs for this financial year should not have been significant. This is as the setting of tariffs would have had to be aligned with inflation and increased cost-of-living so as to be aligned with the notions set in the above indicated Acts of financial sustainability and equitability. 2.2 ENVIRONMENTAL IMPACT ASSESSMENT The only municipality that made mention of an Environmental Impact Assessment in their Tariff Schedule is the City of Cape Town. The basic fee that is charged is R2 310 which is added to other application fees when submitted. This does not mean that other municipalities evaluated do not require an Environmental Impact Assessment. The costs of the assessments are unpublished and thus unknown as the municipality has no specific charge for this service, and therefore the variables influencing these costs are unknown. The assessments for the municipalities that do not prescribe specific charges will be undertaken by private consultants in accordance to the NEMA legislation which is charged by the consultants directly to the developer. 2.3 ZONING AND RE-ZONING FEE The costs of zoning and re-zoning associated with each development example are indicated in Table 2-2. Because the calculation criteria for municipalities vary, the costs for this tariff are determined and calculated by either the site size or total floor area. In this regard, City of Tshwane calculates the re-zoning and zoning fee relative to the total floor area of a development. The remainder municipalities set either a single re-zoning fee, or calculate the total cost by inputting the size of the site as a value into the calculation. The tariffs that are set are, unless specified, inclusive of the costs of administration and other such expenses for example the costs associated with site visits and labour. It is evident in Table 2-2 that the highest costs for retail and industrial development are in City of Cape Town. ethekwini metro and City of Tshwane show the highest figures of re-zoning costs for residential and commercial offices respectively. Zoning and Re-zoning fees for the residential development scenario range between R1 030 and R For retail, the highest cost at R is for City of Cape Town. City of Cape Town also has the highest cost for industrial development at R For commercial development, the costs Cost Highlights range from R9 005 as the highest to R1 030 for the High Cape Town R 15,133 lowest. Average R 4,999 Low Khara Hais R The high costs of R and R for City of 1,030 22

25 Unless otherwise stipulated, the fees indicated in Table 2-3, such as zoning and re-zoning, are inclusive of costs for administration and site visits or consultations etcetera. For example, with regard to //Khara Hais municipality, it has been stipulated that the fee in Table 2-3 is dependent on the actions required to establish a township in this case, re-zoning and subdivision are required actions and thus the costs are inclusive of all the variables required to complete these actions. The fee structure of township establishment for residential developments ranges from R340 to R The cost of retail, commercial and industrial developments ranges from R1 030 across all three development scenarios, to R for retail, R for commercial and R for industrial developments. There is similarly no fee for the establishment of a township for ethekwini metro. The fee for ethekwini metro as indicated in Table 2-3 is a cost that will only be applicable if the township exceeds the boundaries as specified in the building plans previously submitted. With regard to residential developments, a tariff of R342 is payable. For business, commercial and industrial developments, the tariff of R4 212 is payable following the submission and subsequent approval of an application for the authorization of the relaxation of building lines. The fee of R342 was considered an outlier as relative to the other charges, it was deemed as exceedingly low and unlikely. This is the same for the fee of R340 charged by Mangaung municipality of R340. Table 2-3: Township Establishment Fee Study areas Medium Density Residential Retail Centre Commercial Office Industrial Developments Floor size (m²) 2,000 40,000 8,000 10,000 Johannesburg R 4,209 R 4,209 R 4,209 R 4,209 Tshwane R 7,267 R 16,350 R 11,770 R 11,770 Ekurhuleni R 5,375 R 5,375 R 5,375 R 5,375 Mogale City R 6,676 R 6,676 R 6,676 R 6,676 Emfuleni R 5,295 R 5,295 R 5,295 R 5,295 Cape Town N/A N/A N/A N/A George N/A N/A N/A N/A Msunduzi N/A N/A N/A N/A Mbombela R 9,985 R 9,985 R 9,985 R 9,985 Emalahleni R 4,218 R 4,218 R 4,218 R 4,218 Nelson Mandela Bay R 2,280 R 2,280 R 2,280 R 2,280 Buffalo City Metro N/A N/A N/A N/A Polokwane R 6,794 R 6,794 R 6,794 R 6,794 Mangaung R 340 R 2,000,000 R 64,000 R 42,500 Sol Plaatje N/A N/A N/A N/A Khara Hais R 2,060 R 1,030 R 1,030 R 1,030 Rustenburg R 6,050 R 6,050 R 6,050 R 6,050 ethekwini R 342 R 4,212 R 4,212 R 4,212 Other than the City of Tshwane and Mangaung municipality, the remainder of the municipalities which have a tariff for township establishment, charge a single tariff for township establishment City of Johannesburg being one of these. 24

26 Both City of Tshwane and Mangaung municipality Cost Highlights calculate their tariffs by considering the size of the erven High Tshwane R 11,789 or GLA and development type. This is the driver for the Average R 5,600 high tariffs charged by both municipalities. Mangaung Low Khara Hais R 1,288 municipality charges R20 per meter squared for both retail and commercial developments, and R17 per meter squared for industrial developments. The size of the erven is used for this calculation. With regard to City of Tshwane, a basic fee of R7 267 is added to the costs of the combined GLA. For the purpose of this study, the Township Establishment fees for retail, commercial and industrial developments in Mangaung municipality as well as the aforementioned residential township establishment fee for both Mangaung and ethekwini, are going to be considered as outliers as they will distort the data inputted into the comparative model. City of Tshwane therefore charges the highest township establishment tariff for the retail, commercial and industrial development scenarios. With regard to the R , R and R fees that Mangaung municipality charges for the retail, business and industrial development scenarios; it must be noted that the municipal respondent was questioned concerning the exceedingly high tariff costs. The reason for the high fees could not be established as the respondent does not take part in the decision making process but only implements the fee decisions imposed. It was noted that these fees may be re-assessed upon application as the municipality reviews applications case-by-case. Developers should thus take note and approach the municipality when submitting an application. Mbombela municipality has the highest tariff for residential development at a basic cost of R This cost is applicable as a basic charge for all development types. 2.5 SUBDIVISION FEE A basic fee for all municipalities with an additional cost per portion or erven subdivided was used to calculate the subdivision fees shown in Table 2-4. The municipalities wherein this does not apply and just a basic application fee is applicable are City of Tshwane, Mogale City, Msunduzi municipality and Nelson Mandela Bay. The tariffs charged by the municipalities are inclusive of administration fees and labour costs unless otherwise stated. In conjunction, the tariff indicated for Msunduzi municipality in Table 2-4 is a basic fee, but an additional fee for each subdivision will be applicable upon a land survey. This fee is the equivalent of the cost per portion charged by all municipalities other than City of Tshwane, Mogale City, Msunduzi municipality and Nelson Mandela Bay. The subdivision fee is only applicable to the residential development scenario. This is as for the retail, commercial and industrial development examples, the subdivision of erven for development to ensue in these scenarios is not required. With regard to the residential example used in this analysis, subdivision fees range from R536 for Mogale City to the 25 Cost Highlights High ethekwini R 8,009 Average R 2,331 Low Mogale City R 554

27 highest tariff of R8 009 in ethekwini metro. This high fee is driven by a high charge per portion and per subdivision of R342 which thus inflates the overall cost above the fees charged by other municipalities. In comparison, the subdivision fee charged by City of Johannesburg is R790, which is approximately 10 times lower than ethekwini metro. Table 2-4: Subdivision Fee Study areas Medium Density Residential Developments Site Size 20 unit townhouse duplex (100m² each) on 0.8ha Johannesburg R 790 Tshwane R 554 Ekurhuleni R 1,205 Mogale City R 536 Emfuleni R 909 Cape Town R 3,659 George R 4,143 Msunduzi R 2,394 Mbombela R 1,240 Emalahleni R 1,350 Nelson Mandela Bay R 2,880 Buffalo City Metro R 3,590 Polokwane R 2,018 Mangaung R 1,783 Sol Plaatje R 5,062 Khara Hais R 1,030 Rustenburg R 800 ethekwini R 8, BUILDING PLAN FEE For all study areas, the Building Plan fees are calculated by multiplying the GLA/m². Other than the additional charge indicated by the Ekurhuleni metro explained below, the tariffs are inclusive of all administration fees, labour costs and other operating costs incurred related to the processing of building plans. The costs for all development types range from R5 581 to R for residential developments. The lowest charges for retail, commercial and industrial developments respectively are R64 321, R and R with the highest at R , R and R Mangaung municipality has the highest charges for all development examples. These charges were noted as high and consequently questions were posed to the respondents. The reason for the high cost is driven by the high rate payable per m². The charge per m² for a residential development is R75 and for commercial, business and industries, the rate is R119/ m². There was no indication given as to whether these costs would be altered upon application of building plans. 26

29 infrastructure. Because this exercise relies on hypothetical information, municipalities that require development specific information are in the profile, cited as requiring a quotation. Therefore, where applicable, the assumption that the development examples are within the required proximity to available infrastructure was made. Where connection fees for water, sewerage and electricity are not given, the reason is due to the numerous variables that make up the cost for connection fees. The variables are inclusive of the following: administration fees maintenance charges labour costs infrastructural contributions upgrades connection type distance from service infrastructure bulk availability Furthermore, with regard to residential development, it was presumed that each unit has a single sewerage connection. This allowed for a comparable cost analysis WATER CONNECTION FEES Water connections for the development scenarios identified two different connection sizes: 75mm/80mm for the residential development, and 100mm/110mm connection for commercial, retail and industrial. The extent of the cost of connecting water to a new development is dependent on the variables as outlined above. Essentially, with regard to obtaining and calculating the actual costs of connections for water unless specifically given, the charges do not present a universal reflection of the expected costs. Table 2-6 indicates the municipalities which have basic charges for connection fees and those that require a quotation upon a survey of the site. The costs for water connection fees range from Cost Highlights R2 537 to R for residential development, High Buffalo City R 44,714 R2 537 to R for both retail and commercial Average R 24,492 developments, and R2 537 to R for Industrial Low Emalahleni R 2,537 developments. Of the municipalities with a basic tariff per connection size, Ekurhuleni municipality charges the highest connection fee for residential and commercial developments of R and R respectively. 28

30 Buffalo City Metro charges R for a 100mm/110mm connection size for Industries 4. In comparison, City of Johannesburg charges almost R less for the same water connection, and R and R3 000 less for the highest tariff charges of commercial and residential developments respectively. Table 2-6: Water Connection Fees Study areas Medium Density Residential Retail Centre Commercial Office Industrial Developments Connection Size 75mm/80mm 100mm/110mm 100mm/110mm 100mm/110mm Johannesburg R 34,284 R 35,482 R 35,482 R 35,482 Tshwane R 16,110 R 23,610 R 23,610 R 23,610 Ekurhuleni R 37,348 R 45,906 R 45,906 R 45,906 Mogale City Quotation only Quotation only Quotation only Quotation only Emfuleni R 28,050 R 30,200 R 30,200 R 30,200 Cape Town R 5,580 R 6,962 R 6,962 R 6,962 George R 13,584 Quotation only Quotation only Quotation only Msunduzi R 19,597 R 27,605 R 27,605 R 27,605 Mbombela R 28,000 R 34,000 R 34,000 R 34,000 Emalahleni R 2,537 R 2,537 R 2,537 R 2,537 Nelson Mandela Bay R 30,000 R 35,000 R 35,000 R 35,000 Buffalo City Metro R 28,482 R 38,664 R 38,664 R 73,045 Polokwane R 8,948 Quotation only Quotation only Quotation only Mangaung Quotation only Quotation only Quotation only Quotation only Sol Plaatje Khara Hais R 14,100 R 17,800 R 17,800 R 17,800 Rustenburg R 28,280 R 27,131 R 27,131 R 27,131 ethekwini Quotation only Quotation only Quotation only Quotation only The municipalities that were unable to assist and only provide a price on quotation are Mogale City, George municipality, Polokwane municipality, Mangaung municipality and ethekwini metro. With reference to the high charges for water connection fees for Ekurhuleni municipality and Buffalo City, explicit reasons for these high charges were not offered by the municipalities. The technicians instructed that connection charges are dependent on numerous variables, and therefore, when no site visits are ensued, an estimated figure was given. In the opinion of the research team, an inflated value was given to ensure that the actual costs do not exceed the estimate, and that the municipality not be held accountable for a loss incurred for the estimate given. Thus, it is important to note that cost estimates may vary upon the visit of a developable site. The connection fees for the Emalahleni municipality have similarly been noted as significantly lower than the charges for the other municipalities, and have thus, for the purpose of this study been assigned as outliers son as not to alter the range from which the costs are analysed. The fee of R charged by the Buffalo City metro for Industrial connections has been similarly designated as an outlier for the same reason. 4 The connection fee of R for the Buffalo City municipality is the cost payable upon development of Industries within the delineated Industrial Development Zone. 29

32 2.6.3 ELECTRICITY CONNECTION FEES On account of the many variables 6 and infrastructural contributions to take into consideration when determining a connection type and fee, ten of the 18 municipalities being analysed provide connection costs upon either an examination of the development site or submission and application of building plans, or both. A ball park hypothetical figure could therefore not be obtained from the majority of respondent municipalities. These municipalities are City of Johannesburg, Ekurhuleni municipality, City of Cape Town, George municipality, Mbombela municipality, Buffalo City Metro, Mangaung municipality, Sol Plaatje municipality, //Khara Hais municipality and Rustenburg municipality. Ekurhuleni municipality provides a basic connection fee for the residential development scenario. Table 2-8: Electricity Connection Fees Study areas Medium Density Residential Developments Retail Centre Commercial Office Industrial Connection Size 80kVA - 120A 400V 3200kVA 11kV 640kVA A 300kVA - 450A Johannesburg Quotation only Quotation only Quotation only Quotation only Tshwane R 560 R 560 R 560 R 560 Ekurhuleni R 5,100 Quotation only Quotation only Quotation only Mogale City Emfuleni R 2,372 R 2,372 R 2,372 R 2,372 Cape Town Quotation only Quotation only Quotation only Quotation only George Quotation only Quotation only Quotation only Quotation only Msunduzi R 15,064 R 370,295 R 108,956 R 74,450 Mbombela Quotation only Quotation only Quotation only Quotation only Emalahleni R 2,120 R 2,120 R 2,120 R 2,120 Nelson Mandela Bay Buffalo City Metro Quotation only Quotation only Quotation only Quotation only Polokwane R 29,248 R 2,907 R 2,907 R 2,907 Mangaung Quotation only Quotation only Quotation only Quotation only Sol Plaatje Quotation only Quotation only Quotation only Quotation only Khara Hais Quotation only Quotation only Quotation only Quotation only Rustenburg Quotation only Quotation only Quotation only Quotation only ethekwini R 46,740 R 145,370 R 362,570 R 314,980 The municipality that charges the lowest connection fee for all development scenarios is City of Tshwane at R560, which is a basic charge, irrespective of the size or function. It is important to note that further charges such as service contributions, maintenance and administration costs are not included in this tariff. To ensure a comparative analysis, this fee will therefore be considered an outlier. The highest charges for the development scenarios are ethekwini metro for residential, commercial and industrial developments, of R46 740, R and R respectively. Msunduzi municipality has the highest charge for the retail development scenario at R These variables are the same that are included in the water and sewer connection sections. 31

33 When calculating the data for the Comparative Matrix, the high costs charged by the Msunduzi municipality for retail, commercial and industrial connection fees are considered outliers. Specifically with regard to the fee evident in Table 2-8 for the retail development scenario, upon enquiry, the municipality was unable to provide an extensive explanation. The driver of this charge is that connections which have more than kV are charged R101 per kva. Furthermore, from the specialist s perspective, the improbability of the values of R46 740, R , R and R for ethekwini which were supplied by a municipal representative, are questionable and will thus similarly be excluded from calculations for the comparison. Thus, the notion that there was a possible Cost Highlights misunderstanding of the question by the High ethekwini R 217,415 municipal respondents for ethekwini and Average R 54,179 Msunduzi municipalities is assumed. The charges Low Tshwane R 560 of these connection fees are deemed as overestimates and further clarification could not be achieved. 2.8 CONSUMPTION CHARGES WATER, SEWERAGE, REFUSE, ELECTRICITY This section provides the consumption charges for each development type. As indicated in the introductory section, these have been derived using a generalized demand for water, sewerage, refuse and electricity. The assumed demand is indicated in the top row of each table. Similar to connection fees, the tariffs for consumption are set taking into consideration certain variables. Other than the guidelines that are applied by the Minister of the Treasury as indicated in the above section which discusses the specific regulatory determinants of tariffs, there are explicit costs associated with operations which the study areas include in their charges. Generally, these operating costs are charged in the form of a basic fee and include: Labour costs Administration fees Similarly, the capital projects noted within the annual budgets are funded by tariffs. These are inclusive of: Maintenance of service infrastructure Upgrading of infrastructure New projects Furthermore, municipalities are provided with these services by national government and the private sector. For example, consumption charges of electricity are set by NERSA and supplied by Eskom, Independent Power Producers or municipalities. Relative to the bulk availability and capacity of electricity in an area, a municipality may if agreed on by council, increase the tariff relative to overall costs. Similarly, capacity and availability are contributing factors to the costs of consumption 32

35 R20.55 for Sol Plaatje municipality. Furthermore, Sol Plaatje municipality does not indicate as to whether a zero cost to the first 6kl of water consumed is allocated. Sol Plaatje municipality similarly has the highest consumption charges for retail, commercial and industrial developments at R4 510 per month. With regard to City of Johannesburg, unlike the large difference in costs for residential consumption, the City of Johannesburg charges approximately R150 less. An explanation for the high tariff costs charged by Sol Plaatje municipality may be that when compared to the other study areas, water within the Northern Cape is a scarce resource. Essentially, where a resource is more prevalent, the charges should be lower. Table 2-9 indicates that for Nelson Mandela Bay metro, the consumption charge for water is based on scale and unavailable upon request. Essentially, the municipal respondent established that water consumption charges are dependent on the number of days since the previous metering, as well as the amount of water consumed which will concurrently fall within an applicable scale and tariff SEWERAGE CONSUMPTION CHARGES Similar to the demand for water, sewerage is charged at 200kl of water per month, with each townhouse for the residential development example consuming 10kl, with one sewerage point each. The method of costing sewerage consumption across municipalities varies. Emfuleni municipality, Emalahleni municipality, Polokwane municipality, Buffalo City Metro and //Khara Hais municipality measure the costs relative to the size of the Erven, Mangaung municipality with regard to the market value of each development, whilst the remainder of the municipalities charge per kilolitre of water consumed. This is based on the assumption that a large portion of water consumed will become sewerage. There are two additional costs applicable, which is a charge per sewer point, and a 60% charge on water consumed. George municipality and Sol Plaatje municipality charge per sewer point for retail, commercial and industrial developments. For the same development scenarios, Polokwane municipality will charge an addition to the cost as indicated in Table 2-10 for sewer points, grease taps and so forth. This is the reason for the improbable charge of R90 for commercial developments. Similar to the costing for water consumption, Nelson Mandela Bay is unable to provide a cost for consumption relative to the development types. Essentially, the costs for sewerage are linked to the amount of water consumed hence the charge is based on 60% of water consumed. A computed formula is used to calculate the monthly charge, thus signifying that the costs vary monthly. As indicated in Table 2-10, the consumption charges for sewerage across all municipalities are wideranging. The tariff cost ranging for the residential scenario from R72 to R is explanatory of this assessment. The costs for retail range from a low R99 to R , R90 to R for the commercial development scenarios and R99 to R for industrial development. George municipality and Mangaung municipality have the highest costs for sewer consumption across all municipalities. With reference to George municipality, sewerage consumption for the residential development example is R per month. When queried, the municipal respondent 34

37 As previously indicated, the values for both the George and Mangaung municipalities are identified as outliers. In conjunction, the low fees evident in Table 2-10 for Emfuleni municipality (R113), for the commercial development in Polokwane municipality (R90), for the ethekwini municipality (R72), and the costs of R99 for all three development scenarios other than the residential development for Rustenburg municipality are all, due to the unlikeliness of these low tariffs, classified as outliers. If incorporated into the analysis as values, the municipalities with normal costs will appear as expensive, thus skewing the analysis REFUSE CONSUMPTION CHARGES Refuse tariff costs are determined differently across all municipalities. Rates are determined relative to one or a combination of the following 7 : developed site value, size of the erven, or the litres of refuse produced per week. The size and value of the sites applied are in conjunction with the pre-determined values. To ensure that an all-inclusive comparative analysis was made, an assumption concerning the litres of waste produced per week was made to facilitate a standardized analysis. It was assumed that each residential unit produced 240L per week, and that retail, commercial and industrial developments each produced 1 100L of refuse per week 8. Table 2-11 illustrates the refuse consumption tariffs for the delineated municipalities. The charge for refuse consumption for the residential scenario ranges from R596 to R R117 is the lowest charge for the retail, commercial and industrial development scenarios, of which the costs range to R9 550, R5 762 and R7 192 for the respective developments. Buffalo City Metro charges the highest refuse removal tariff for the residential development example. This cost is driven by the fee of R446 per container per unit, equating to R per month. Through correspondence with relevant municipal officials, it was stated that this tariff would be re-assessed upon the completion of the development. Polokwane municipality has the highest tariff for the retail, commercial and industrial development examples. No explanation for these charges from the Polokwane municipality could be attained. The high charge for Buffalo City metro is determined as an outlier. Table 2-11: Refuse Consumption Tariffs 7 Apart from the litres produced, both the developed site value and size of the erven were garnered from the previous study. 8 The litre of refuse produced is not an indication of the amount of refuse an actual development as the examples would produce. Therefore the tariff values are not an indication of what the actual tariff charges for each development will be, but is instead used as a tool for comparison. 36

40 rate charges across the study areas. Municipal rates are applied to the municipal rand value of the vacant property, at a specific rate randage. These rates are determined by the costs incurred by municipalities relative to the site. Vacant land is essentially an asset which the municipality services but does not receive developed property tax on. Therefore, the rates for vacant land are designed as an incentive to develop and force developers not to let the land lay vacant for a long period. Other than to cover the costs of servicing the vacant land including service contributions, labour costs etcetera, they further cover all operating costs such as maintenance and bulk infrastructure upgrades. In essence, the rates are set according to the value of a site in its entirety including all variable increasing or decreasing value. Table 2-13: Vacant Land Rates for Vacant Land per Municipality Study areas Medium Density Residential Retail Centre Commercial Office Industrial Developments Land value R 20,000,000 R 250,000,000 R 20,000,000 R 25,000,000 Johannesburg R 445,840 R 5,573,000 R 445,840 R 557,300 Tshwane R 1,202,800 R 15,035,000 R 1,202,800 R 1,503,500 Ekurhuleni R 596,000 R 7,450,000 R 596,000 R 745,000 Mogale City R 845,600 R 10,570,000 R 845,600 R 1,057,000 Emfuleni R 340,000 R 6,375,000 R 510,000 R 742,500 Cape Town R 242,480 R 3,031,000 R 242,480 R 303,100 George R 100,280 R 1,253,500 R 100,280 R 125,350 Msunduzi R 404,000 R 5,050,000 R 404,000 R 505,000 Mbombela R 445,900 R 5,573,750 R 445,900 R 557,375 Emalahleni R 278,900 R 3,486,250 R 278,900 R 348,625 Nelson Mandela Bay R 446,460 R 5,580,750 R 446,460 R 558,075 Buffalo City Metro R 441,000 R 5,512,500 R 441,000 R 551,250 Polokwane R 455,820 R 2,050,000 R 164,000 R 205,000 Mangaung R 155,920 R 1,949,000 R 155,920 R 194,900 Sol Plaatje R 39,880 R 747,725 R 59,818 R 184,435 Khara Hais R 63,120 R 789,000 R 63,120 R 78,900 Rustenburg R 150,000 R 1,875,000 R 150,000 R 187,500 ethekwini R 875,200 R 10,940,000 R 875,200 R 1,094,000 As indicated in Table 2-13 the range of costs are significant. City of Tshwane has the highest costs payable for vacant land for residential (R ), retail (R ), commercial (R ) and industrial (R ) developments. In comparison, the lowest costs for residential, retail, commercial and industrial developments are R39 880, R , R and R respectively. The high charges for City of Tshwane are driven by the vacant land rate of R which is relevant to all zoned land. It was noted that the rate for vacant land for the metro was higher than the other study areas, but although queried, the municipality had no explanation. It is important to note that the rates payable to municipalities for vacant land is in general higher than the rates payable for a developed site. The explanation as aforementioned is that municipalities incur costs on serviceable 39

41 land which remains unused. The high rates may thus be viewed as encouragement from municipalities to develop a vacant site. Emfuleni municipality, Polokwane municipality and Sol Plaatje municipality have a different rate in the rand dependent on the type of development. The values in Table 2-13 do not express the rebates that are applicable. The municipalities that offer rebates on vacant land rates are Mogale City, Emfuleni municipality, Emalahleni municipality and ethekwini metro as indicated in Table Table 2-14: Vacant Land Rate Rebated for Vacant Land per Municipality Study areas Medium Density Residential Retail Centre Commercial Office Industrial Developments Land value R 20,000,000 R 250,000,000 R 20,000,000 R 25,000,000 Emfuleni R 339,320 Mogale City R 844,966 Emalahleni R 251,010 R 3,137,625 R 251,010 R 313,763 ethekwini R 873,887 R 10,938,687 R 1,092,687 R 1,094,000 A rebate of R on the ratable land value for residential vacant land only is applicable in Mogale City. ethekwini metro and Emfuleni municipality offer the same rebate at R and R respectively. The rebates for ethekwini metro and Emfuleni municipality differ in that only vacant residential categorized land pertains for Emfuleni municipality, whilst all development land types are applicable for ethekwini metro. In conjunction, Emalahleni municipality offers a 10% rebate on the value of land already rated. The rebated Vacant Land rate for these four municipalities is illustrated in Table There are no rebates on vacant land for the remaining municipalities. Cost Highlights High Tshwane R 4,736,025 Average R 1,622,948 Low Khara Hais R 248, PROPERTY RATES In order to determine the value of the buildings and infrastructure on each site, typical building costs were used. These values were then incorporated with the allocated land values to determine the 40

42 total property value 11 for each development type reflected in Table 2-15 and Table This would enable a comprehensive comparison of property rates. As aforementioned, the costs that have been assigned to each development type are not intended to divert from the actual comparative analysis the values have been held constant in all municipal areas so that the tariff costs per development may be compared. The rates determined by municipalities are essentially determined by the value of a property and the development type. The value of a property is in turn influenced by not only the annual Circular provided by the Treasury, but by variables inclusive of administration fees, costs associated with servicing the land, for example infrastructure upgrades and maintenance and labour costs, the property location for example the City of Cape Town charges different rates relative to property site, increased demand for property and other variables that impact on the value of a property. Table 2-15 illustrates the property rates payable per annum, with charges ranging from R to R for residential, R to R for retail, R to R for commercial and R to R for industrial developments. Table 2-15: Property Rates per Development Type and Municipality Study areas Medium Density Residential Developments Retail Centre Developed Site Value (Land and Building) R 100,000, ,000,000 Johannesburg R 557,300 13,653,500 Tshwane R 1,354,000 18,956,000 Ekurhuleni R 740,000 10,430,000 Mogale City R 1,057,000 14,798,000 Emfuleni R 850,000 11,900,000 Cape Town R 606,200 8,486,800 George R 501,400 4,214,700 Msunduzi R 1,110,000 14,140,000 Mbombela R 743,200 13,005,300 Emalahleni R 768,500 9,761,500 Nelson Mandela Bay R 744,100 10,417,400 Buffalo City Metro R 735,000 12,862,500 Polokwane R 476,000 5,740,000 Mangaung R 779,600 27,034,000 Sol Plaatje R 912,000 19,159,000 Khara Hais R 1,262,400 13,255,200 Rustenburg R 530,000 12,880,000 ethekwini R 914,000 14,504,000 Commercial Office Industrial R R 52,800,000 R 275,000,000 R R 1,029,864 R 5,363,875 R R 1,429,824 R 7,447,000 R R 786,720 R 5,142,500 R R 1,116,192 R 5,813,500 R R 897,600 R 5,830,000 R R 640,147 R 3,334,100 R R 317,909 R 1,655,775 R R 1,066,560 R 5,555,000 R R 980,971 R R 736,296 R 3,834,875 R R 785,770 R 5,115,825 R R 970,200 R 5,053,125 R R 432,960 R 2,255,000 R R 2,039,136 R 10,620,500 R R 1,445,136 R 10,661,750 R R 999,821 R 5,207,400 R R 971,520 R 5,197,500 R R 1,094,016 R 7,353,500 With regard to the range of charges, City of Tshwane has the highest costs for a residential development at R compared to R for George municipality and R for Polokwane municipality. These costs are relative to the rates randage for all three municipalities at 11 The developed site values are derived from the previous study 41

44 Upon the inclusion of rebates into the calculation of residential property tariffs, the municipality charging the highest tariff, inclusive of a rebate of the first R of the market value of a property, is //Khara Hais municipality. The property rate is R which equates to R5 257 per month per unit 12. As indicated in Table 2-16, 14 of the municipalities for which data is available have rebates on residential property rates. Ekurhuleni municipality, Msunduzi municipality, Nelson Mandela Bay Metro and Buffalo City metro do not offer rebates on property rates. Nevertheless, Ekurhuleni municipality and Msunduzi municipality offer rebates to developers of newly rateable property. This is addressed in the next sub-section. Other than rebates granted for residential developments, Emalahleni municipality and Polokwane municipality award rebates on all four development scenarios and Mbombela municipality grants a rebate on retail and commercial developments ADDITIONAL COMMENTARY ON APPLICATION OF REBATES In accordance with the calculation of rebates, this section outlines the rebates applicable, dependent on certain scenarios. With regard to all municipal study areas, two scenarios in which discounts are applicable are evident, these being a rebate for developers and the phasing in of rates for newly rateable property. Ekurhuleni municipality, Emfuleni municipality and Msunduzi municipality offer rebates for developers. Concerning Ekurhuleni municipality, a rebate of 75% on property rates for residential developments is applicable. The rebate will only be applicable upon the submission of an approved building plan, and if residential dwelling unit/s are under construction and will be used exclusively for residential purposes. This rebate will only be granted for a period of 18 months, commencing on the date of submission of the approved building plan, and should an occupation certificate at the end of the 18 months not be supplied, a reversal of the 75% rebate already granted shall result. The development incentives granted to developers by the Emfuleni municipality is a 50% rebate. This rebate however is only applicable upon the submission of an application that decrees the approval of building plans and the commencement of development. If development has been hindered on account of a municipal basis, the rebate will still apply. The rebate is temporary and will be valid for a 12 month period after which a new application must ensue. With regard to Msunduzi municipality, a developer s rebate is applicable over three years, and is subject to council conditions. The rebates stipulated in the Msunduzi municipality Tariff Schedule state that a 66% and 33% rebate for the first and second year respectively is applicable. No rebate applies from year three onwards. With regard to rebates for newly rateable or recently developed property, a phasing in of rates payable will ensue. Municipalities offering a phasing in rebate are Mogale City, Msunduzi 12 This value was determined under the assumption that each unit under the sectional title scheme is valued the same, and in conjunction with the notion that the land and building values are constant across all municipalities as aforementioned. 43

45 Residential Development Rebate Retail Development Rebate Commercial Development Rebate Industrial Development Rebate Developers Rebate Rebate for Newly Rateable Property Vacant land Rebate PROPERTY DEVELOPMENT: COMPARISON OF MUNICIPAL SERVICES COSTS: REPORT 2013 municipality and ethekwini metro. In Mogale City, Msunduzi municipality and ethekwini metro, the phasing in of rates for newly rateable property is to be spread over three financial years. In the first year of a newly rateable property, a rebate of 75% is applicable, followed by 50% and 25% for the second and third years respectively. Table 2-17 provides an illustration of the rebates applicable to all municipalities. Table 2-17: A Comparison of Rebates Applicable per Municipality Study areas Johannesburg Tshwane Ekurhuleni Mogale City Emfuleni Cape Town George Msunduzi Mbombela Emalahleni Nelson Mandela Bay Buffalo City Metro Polokwane Mangaung Sol Plaatje Khara Hais Rustenburg ethekwini As indicated in Table 2-17, the number of rebates per municipality ranges from zero to five rebate options on average with rebates on residential development being most prevalent. Polokwane municipality presents the highest number of rebates at five COMPARATIVE MATRIXES The Tables within this section provide a comparison and rating for each indicator of the municipal services costs as detailed in the previous chapters. Essentially, each Table serves as a guideline for developers concerning the services costs associated per development type and the relative indicator. A Table for each development scenario is compiled medium density residential (Table 2-18), retail centre (Table 2-20), commercial office (Table 2-22) and industrial (Table 2-24). Finally, Table 2-26 provides a combined comparison for the tariff and services costs of all development scenarios across all municipalities. 44

46 The values for each indicator illustrated in the Tables were surmised by creating a range from 1 5. This exercise was done in order to rank the best performers in terms of affordable costing as well as to distinguish municipalities where developmental costs are comparatively higher. Each value falls within a range from 1 5, 5 being the lowest cost, and score 1 being the most expensive. The ranges were calculated by dividing the difference between the highest and lowest cost from each indicator by five. This value was then added to the lowest cost and so forth, creating a range of 1 5. The values in the final comparative matrix (Table 2-26), which is a summation of the costs of all four development scenarios, were ranked in the same manner. The values however were deduced by calculating the average costs for each indicator per municipality for the various developmental scenarios. The blocks that have been marked blue are an indication of charges that are fictitious on account of the need for a quotation by the municipality. These values indicated were inferred by using the overall average for the applicable tariff cost excluding the outliers. This was necessary to reflect a cost which is market-related, as a zero score would be less comparative and consequently produce an imbalanced analysis. Furthermore, the blocks that have been marked orange indicate the municipalities that have tariffs significantly higher or lower than the average costs, and were thus considered outliers. These values were not included in the calculations of the range used for this analysis. The outliers have been indicated and detailed in the above sections. The services costs for each municipality deemed as an outlier scored a single point; as in conjunction with the rankings indicated by the blue blocks, if a zero score was given, the results would consequently be unreliable. The few outstanding costs received a zero score COMPARATIVE MATRIX OF THE MEDIUM DENSITY RESIDENTIAL DEVELOPMENT Table 2-18 indicates the ranking for the services costs relative to the medium density residential development. The total scores range from the lowest for ethekwini municipality with 31 points, to Emalahleni municipality whom has the best score with 54 points. The highest possible score for each municipality is 65 points. As specified in Table 2-18, the municipalities that have outliers are Tshwane municipality, George municipality, Mbombela municipality, Emalahleni municipality, Nelson Mandela Bay, Buffalo City Metro, Polokwane municipality, Mangaung municipality and ethekwini municipality 13. ethekwini municipality (31 points) and Mangaung municipality (39 points) have three outliers each, which are contributing factors to the low scores received by these municipalities. Similarly, the two outstanding costs evident by the zero scores for the Rustenburg municipality, are contributions to the second lowest score (37) received. 13 The explanations for the outliers is provided and detailed within the sections above. 45

47 ethekwini Average Johannesburg Tshwane Ekurhuleni Mogale City Emfuleni Cape Town George Msunduzi Mbombela Emalahleni Nelson Mandela Bay Buffalo City Metro Polokwane Mangaung Sol Plaatje Khara Hais Rustenburg ethekwini PROPERTY DEVELOPMENT: COMPARISON OF MUNICIPAL SERVICES COSTS: REPORT 2013 Table 2-18: Comparative Matrix of Medium Density Residential Development Study areas Zoning & rezoning tariff costs Township establishment fee Subdivision fee Building plan tariff Sewer Connection fees Water Electricity Sewer Consumption charges Water Refuse Electricity Vacant land rates Property rates TOTAL The average score for the residential development scenario is 45. Seven municipalities scored below average. These municipalities are City of Tshwane, Nelson Mandela Metro, Buffalo City, Mangaung municipality, Sol Plaatje municipality, Rustenburg municipality and ethekwini. The municipalities that scored above 50 points are Emfuleni municipality (53), Emalahleni municipality (54) and //Khara Hais municipality (52). The City of Johannesburg received an average score. In general, the cost indicator for which the majority of the municipalities scored well for is subdivision fees. The maximum score attainable for each cost indicator is 90. In conjunction, the score for subdivision fees is 74 points, thus receiving 82%. The indicators which scored next best were vacant land rates (71 points), water consumption charges (72), and zoning and rezoning fees (68). The municipalities scored 67 for both property rates and sewer connection fees. Considering the comparative aim of this study, Table 2-19 highlights the cost of development within the Gauteng municipalities for the residential development relative to the average costs and the highest and lowest charges for all study areas. Concerning the residential development scenario, it is evident that of the five municipalities within the Gauteng province, the Emfuleni municipality scores the highest points (53). Both the Ekurhuleni municipality and Mogale City score above average with 46 points each. One may further determine from Table 2-18 that the Gauteng municipalities, when compared to the other study areas, are the most affordable for subdivision fees each receiving a score of 5, as well as for building plan fees. Table 2-19: Services Cost Comparison of Gauteng Municipalities for Residential Development Study areas Total Scores above/below average Johannesburg 45 Average Tshwane 40 Below Average Ekurhuleni 46 Above Average 46 Mogale City 46 Above Average Emfuleni 53 Above Average

48 Johannesburg Tshwane Ekurhuleni Mogale City Emfuleni Cape Town George Msunduzi Mbombela Emalahleni Nelson Mandela Bay Buffalo City Metro Polokwane Mangaung Sol Plaatje Khara Hais Rustenburg ethekwini PROPERTY DEVELOPMENT: COMPARISON OF MUNICIPAL SERVICES COSTS: REPORT 2013 It is further apparent that the least affordable indicators for the Gauteng municipalities are water and electricity connection fees, and refuse and electricity consumption charges. Finally, the fees for township establishment and vacant land and property rates are not consistent in value across the Gauteng municipalities, some study areas being rated as affordable, and others as expensive COMPARATIVE MATRIX OF THE RETAIL CENTRE DEVELOPMENT As above, with regard to the retail development scenario, Table 2-20 provides the ranking of each municipality for the cost indicators. The scores range from 29 as the lowest for the Mangaung municipality, to 52 as the highest score. As is the same for the residential development, Emalahleni municipality received this high score. There are no scores for subdivision as this indicator is not relevant to this development scenario. Table 2-20: Comparative Matrix of Retail Centre Development Study areas Zoning & rezoning tariff costs Township establishment fee Subdivision fee Building plan tariff Sewer Connection fees Water Electricity Sewer Consumption charges Water Refuse Electricity Vacant land rates Property rates TOTAL For nine municipalities, twelve outliers are illustrated by the orange blocks in Table The municipality that has the most outliers is Mangaung municipality a total of four. These outliers are for township establishment fees, building plans, and sewer and refuse consumption charges. As specified, the explanations for these outliers are provided in the relevant sections above. Alongside the missing cost which received a zero score, these four outliers contribute to the low score of 29. Therefore, it is important to acknowledge that the low score for Mangaung municipality is a guideline and it must be analysed alongside the explanations for these services costs. The average score for the costs of developing the retail development is 41. Therefore, half of the municipalities fall below this average, of which two are municipalities within the Gauteng province City of Tshwane and Mogale City Municipality, scoring 36 and 37 respectively. These scores are indicated in Table 2-20, as well as in Table 2-21 which provides an indication of the scoring for the Gauteng municipalities relative to the highest and lowest scoring study areas. 47

49 With regard to the comparisons of the services costs for this development scenario, the indicators which were most comparable and which scored the best were zoning and rezoning fees, township establishment fees, sewer connection fees and vacant land rates. Zoning and rezoning received 84%, a total score of 76 out of 90 points. Both sewer connection and vacant land rates scored 79% (71 points), and the score for township establishment was 64, receiving 74%. The worst scoring cost indicator is the fees for electricity connection, with 44%. This is partially due to the majority of municipalities requiring quotations to determine a value. Table 2-21: Services Cost Comparison of Gauteng Municipalities for Retail Centre Development Study areas Total Scores above/below average Johannesburg 44 Above Average Tshwane 36 Below Average Ekurhuleni 41 Average Mogale City 37 Below Average Emfuleni 45 Above Average Mangaung Average Emalahleni It is evident in Table 2-21 that two of the municipalities in the Gauteng province City of Tshwane and Mogale City scored below average. The City of Tshwane is rated as expensive for property planning costs and the rates for vacant land and property. Mogale City is equally expensive for property and vacant land rates. Other than the City if Tshwane, all Gauteng municipalities are rated as affordable for property planning tariffs. Furthermore, other than Emfuleni municipality whose charge was deemed as an outlier, all municipalities are deemed as affordable for refuse consumption. Furthermore, in conjunction to the residential development scenario, the water and electricity connection fees for the Gauteng municipalities are, when compared to the other study areas, expensive. This is also the case for the costs to consume water within Gauteng province COMPARATIVE MATRIX OF THE COMMERCIAL OFFICE DEVELOPMENT Table 2-22 provides the same detailed illustration and guideline as the above sections do. However, this section indicates the scores for the commercial business development example. As is the case for the retail development scenario, subdivision fees are not applicable and therefore each municipality received zero points. The scores for this development type range from 32 points for both the Mangaung municipality and Rustenburg municipality, to the highest score of 47, received by //Khara Hais municipality. Table 2-22: Comparative Matrix of Commercial Business Development 48

50 Johannesburg Tshwane Ekurhuleni Mogale City Emfuleni Cape Town George Msunduzi Mbombela Emalahleni Nelson Mandela Bay Buffalo City Metro Polokwane Mangaung Sol Plaatje Khara Hais Rustenburg ethekwini PROPERTY DEVELOPMENT: COMPARISON OF MUNICIPAL SERVICES COSTS: REPORT 2013 Study areas Zoning & rezoning tariff costs Township establishment fee Subdivision fee Building plan tariff Connection fees Consumption charges Vacant land rates Property rates TOTAL Sewer Water Electricity Sewer Water Refuse Electricity In total, there are 13 outliers identified. In conjunction to the retail development scenario, there are four outliers for the Mangaung municipality. Therefore, it is clear that the lowest score of 25 received by this study area is not particularly indicative of the true costs. In conjunction, Rustenburg municipality has a single outlier, but is missing the costs for building plans and refuse consumption charges. The average score for all municipalities is 39 points. Seven municipalities scored below average, as indicated in Table 2-22, these being all the Gauteng municipalities other than Emfuleni municipality which scored 41 points, and the City of Johannesburg with 42 points. The points received by the other low scorers are for Buffalo City metro (38), Polokwane municipality (34), Mangaung municipality (32) and Rustenburg municipality (32). Concerning the comparisons of the municipal services costs for this development scenario, the indicators which scored the best were zoning and rezoning and vacant land rates. These indicators scored 82% and 80% respectively. The lowest scoring indicator was the indicator for electrical connection fees which had 43 points, equating to 48%. This low score is due to the requirement of quotations upon a site visit for ten of the municipalities, as well as the three identified outliers. The other cost indicators that received a good score were sewer connection fees (78%), and property rates (72%). Table 2-23: Services Cost Comparison of Gauteng Municipalities for Commercial Business Development Study areas Total Scores above/below average Johannesburg 42 Above Average Tshwane 36 Below Average Ekurhuleni 38 Below Average Mogale City 35 Below Average Emfuleni 41 Above Average Mangaung & 49 Rustenburg Average Khara Hais

51 As illustrated in 2-23, the three municipalities within the Gauteng province who did not receive scores indicating affordable costs for developing the commercial development scenario are City of Tshwane, Ekurhuleni municipality and Mogale City. Together with the retail development, the City of Tshwane is expensive considering planning costs as well as land and vacant land rates. Using the services costs of the other study areas as a baseline for comparison, when compared, Ekurhuleni municipality and Mogale City are similarly expensive for township establishment and vacant land rates. In general, all the Gauteng municipalities charge high costs for water and electricity connections, and water consumption rates. For both sewer connection fees and refuse consumption charges, other than Emfuleni municipality whose costs have been noted as outliers, the Gauteng municipalities are cast as affordable. Significantly, when comparing all municipalities to Gauteng, it is evident that for property owners in the Gauteng study areas, vacant land rates are the most expensive COMPARATIVE MATRIX OF THE INDUSTRIAL DEVELOPMENT The ranking and scores for the services cost comparison of the industrial development are illustrated in Table Similar to the retail and commercial business developments, subdivision fees are not applicable for this development scenario and thus receive zero scores. The scores for these municipalities range from 32 points to 48 points. The lowest scoring municipality for this development scenario is Mangaung municipality. Mangaung municipality was similarly the lowest scoring study area for the retail and commercial development scenarios. The highest scoring municipality is //Khara Hais, which similarly received the highest score for the commercial office development. In total, the average score for all municipalities is 39. The study areas that scored below average were City of Tshwane, Mogale City, George municipality, Mbombela municipality, Buffalo City metro, Mangaung municipality, Sol Plaatje municipality and the Rustenburg at ethekwini municipalities. Therefore, eight of the 18 municipalities scored above average, and one Ekurhuleni municipality, received the average score of 39 points. The highest scoring municipalities are the City of Johannesburg and Emfuleni municipality both with 42 points, City of Cape Town (44), Msunduzi municipality (41) and Nelson Mandela Bay (41), Emalahleni municipality (47) and Polokwane and //Khara Hais municipality with 43 and 48 points respectively. 50

52 Johannesburg Tshwane Ekurhuleni Mogale City Emfuleni Cape Town George Msunduzi Mbombela Emalahleni Nelson Mandela Bay Buffalo City Metro Polokwane Mangaung Sol Plaatje Khara Hais Rustenburg ethekwini PROPERTY DEVELOPMENT: COMPARISON OF MUNICIPAL SERVICES COSTS: REPORT 2013 Table 2-24: Comparative Matrix of Industrial Development Study areas Zoning & rezoning tariff costs Township establishment fee Subdivision fee Building plan tariff Sewer Connection fees Water Electricity Sewer Consumption charges Water Refuse Electricity Vacant land rates Property rates TOTAL As indicated in Table 2-24, 12 outliers were identified, four of which were for the Mangaung municipality. Concerning this and in conjunction to the other development scenarios, it is evident that these outliers are reasons for the low score of 32. This is similarly with regard to Rustenburg municipality which has two outstanding costs. The indicators that were the highest scorers essentially the ones which display the most comparable costs, are sewer connection fees and vacant land rates, both receiving 79%. Both water and electricity consumption charges were the worst cost indicators, receiving the lowest scores of 50% and 52% respectively. Aligned with all the development scenarios, and with regard to the industrial development example, the City if Tshwane scored below average for costs. Mogale City similarly scored below average in conjunction to the retail and commercial development scenarios. Table 2-25 further indicates that the City of Johannesburg and Emfuleni municipality both have a score of 42, six points lower than the highest scorer - //Khara Hais. Relative to the other study areas, all the municipalities for the Gauteng province are rated as expensive for water and electricity connection fees, water consumption charges, and vacant land rates. Table 2-25: Services Cost Comparison of Gauteng Municipalities for Industrial Development Study areas Total Scores above/below average Johannesburg 42 Above Average Tshwane 36 Below Average Ekurhuleni 39 Average Mogale City 34 Below Average Emfuleni 42 Above Average Manguang Average Khara Hais

53 Johannesburg Tshwane Ekurhuleni Mogale City Emfuleni Cape Town George Msunduzi Mbombela Emalahleni Nelson Mandela Bay Buffalo City Metro Polokwane Mangaung Sol Plaatje Khara Hais Rustenburg ethekwini PROPERTY DEVELOPMENT: COMPARISON OF MUNICIPAL SERVICES COSTS: REPORT 2013 Concerning the planning costs associated with development, other than the City of Tshwane which is expensive, the remaining four municipalities have affordable rates. Furthermore, all the Gauteng study areas, when compared to the other study areas, charge affordable refuse and sewerage consumption tariffs FINAL COMPARATIVE MATRIX FOR ALL DEVELOPMENT SCENARIOS The final matrix provides a comparable outline of the municipal services costs for all development scenarios. Essentially, each municipality is in total ranked to create a single cost comparison. As aforementioned, the average for each indicator per municipality for each development type was inputted into the calculations for this matrix. Similar to the above tables, the orange blocks indicate outliers, and the blue blocks indicate the average cost. Furthermore, the same ranking system is utilised. A few observations from the table include: The scores in the Comparative Matrix range from 58 as the highest, and 37 for the lowest. The municipality identified as the most affordable is //Khara Hais municipality. ethekwini municipality, with 37 points, is essentially the most expensive when considering development and rates and application fee costs. The municipalities that scored well are the City of Johannesburg, Ekurhuleni municipality, Emfuleni municipality, Msunduzi municipality, Emalahleni municipality, Nelson Mandela Bay metro, and //Khara Hais municipality and Rustenburg municipality. These municipalities each had 46 or above points. The average performer is George municipality. The remainder of the municipalities fall below the average score of 45. The municipalities that have costs deemed as outliers are indicated in Table These municipalities are City of Tshwane, City of Cape Town, George municipality, Msunduzi municipality, Emalahleni municipality, Mangaung municipality, //Khara Hais municipality and ethekwini metro. Table 2-26: Final Comparative Matrix Study areas Zoning & rezoning tariff costs Township establishment fee Subdivision fee Building plan tariff Connection fees 52 Consumption charges Vacant land rates Property rates TOTAL Sewer Water Electricity Sewer Water Refuse Electricity

54 Concerning the comparative aim of this study, Table 2-27 highlights the services costs of development within the Gauteng municipalities relative to the average costs and the highest and lowest charges for all study areas. It is evident for the Gauteng study areas, that when considering the results of the individual cost indicators, the City of Tshwane in total has a below average score. Mogale City similarly scores below average for total services costs of all development scenarios. The most affordable municipality as indicated in Table 2-27 is the Emfuleni municipality, with a total score of 54 points. Other than water consumption for which the study area is allocated 2 points, the Emfuleni municipality has affordable charges for all cost indicators. With regard to all the Gauteng municipalities under analysis, it is apparent that in total, water connection fees, electricity consumption charges and rates for both vacant and occupied land are comparably expensive. It is further illustrated in Table 2-26 that the fees for subdivision and refuse and sewer consumption are affordable when compared to the other study areas. Table 2-27: Services Cost Comparison of Gauteng Municipalities for all Development Scenarios Study areas Total Scores above/below average Johannesburg 48 Above Average Tshwane 40 Below Averge Ekurhuleni 47 Above Average Mogale City 44 Below Average Emfuleni 54 Above Average ethekwini Average Khara Hais With reference to the assessments of which of the analysed municipalities are financially conducive to property development, Table 2-26 provides a guideline for developers concerning services costs for each study area. Below will outline which indicators for which study areas will require examination upon development. Considering the least affordable municipality regarding property development ethekwini municipality, when assessed for development potential by developers, the indicators to interrogate is zoning and rezoning fees, subdivision fees, electricity consumption charges and vacant land rates. The City of Cape Town is the lowest performer for zoning and re-zoning fees, scoring a 1. ethekwini metro scores 2 points. Therefore, these metros require prior assessment before zoning and rezoning submissions. Despite scoring 3, George municipality similarly charges a high tariff for the rezoning of agriculture to retail land use. Mangaung municipality received a score of one for township establishment as the cost has been considered an outlier and was therefore not included in the calculations. Nevertheless, as aforementioned, upon application developers need to query the charge. The City of Tshwane and 53

55 Mbombela municipality also have high costs for township establishment. The City of Cape Town, George municipality, Msunduzi municipality, Buffalo City metro and Sol Plaatje municipality all received a score of 3. These scores do not signify high charges, as as indicated in Table 2-18, they are fictitious scores as an average was applied to these municipalities. Essentially, these municipalities do not charge a fee for township establishment. The worst scorer for subdivision fees is ethekwini municipality with 1 point, followed by Sol Plaatje who scores 2 points. With reference to Table 2-4, it is evident that none of the fees for all municipalities differ significantly. As with township establishment fees, with regard to building plan fees, the cost payable to the municipality of Mangaung has been considered an outlier and must be further queried by developers. The costs for the City of Cape Town, George municipality and Buffalo City metro should also be queried further by developers upon development. With regard to the costs of connection fees, connections for sewerage for the City of Tshwane and Emalahleni municipality are outliers. The costs are considered as underestimated and municipal technicians must be consulted. The municipalities who charge high rates for sewer connection fees are Mbombela municipality and Rustenburg municipality. Concerning water connection fees, the most expensive municipalities are Ekurhuleni municipality and Buffalo City metro. The electricity connection fee for the City of Tshwane scores one point (outlier) as the charge appears to be underestimated and must be re-assessed. In conjunction, the charges by ethekwini metro and Msunduzi municipality have been identified as unlikely and over-estimated. These outliers must be assessed upon development. Again, the Mangaung municipality should be queried with reference to the charges payable for sewerage consumption. George municipality and //Khara Hais municipality should similarly be queried regarding sewerage consumption costs for residential and retail development respectively. Mbombela municipality and Buffalo City metro both scored 1. Concerning water consumption charges, the only municipality that scored 1 is Sol Plaatje municipality. Nevertheless, the charges payable to this municipality are not significantly higher than the costs for the other study areas. Although Buffalo City metro scored 2 points for refuse consumption, as indicated by the municipality, the refuse charges for residential development may be re-assessed upon development. The municipalities Polokwane and Rustenburg should be approached regarding the refuse consumption charges. There are no significantly high charges for electricity, although Mogale City did score 1 for consumption costs. Respectively, vacant land rates and land rates for the City of Tshwane and Mangaung municipality are charged at higher rates than the other study areas. Developers should query these rates upon assessment of development KEY OBSERVATIONS 54

56 There appears to be a significant imbalance in costing and fees with wide ranging fee structures for standard services provided by the different municipalities. It is thus difficult to derive an actual market value and decide which municipalities charge above or below market. The imbalance also causes a difficult comparison due to the fact that the range is so extensive with outliers both above and below the average. It was found that transparency regarding the rationale on the rates and fees and the logic to develop formulas to calculate the amounts is lacking. Some officials interviewed who work in the departments that calculate fees on a case- by-case basis could not provide a clear understanding in terms of the method, rationale and reasoning to derive the due amounts, and therefore cannot explain to the public in sufficient detail. It is unclear why a more standardised approach with regard to the techniques and formulae to determine the fees cannot be prescribed. The research team is in agreement that the formulae needs to be amenable to the local situation but a resemblance of a standardised approach is still required. For some municipalities, it was with great difficulty that the research team identified the appropriate contact respondents that could provide the information on the rates and fees as required. In most cases this could be ascribed to inability of switchboard staff to understand the request and match it with the appropriate respondent. In other cases, the challenge is perceived due to unstandardised departmental structures and responsibility allocations. Municipalities also had difficulty to provide ball park and generalised costing which is the requirement of this assignment. 3. SURCHARGES This section details the surcharges that the 18 delineated municipalities charge for property development, as well as the additional costs incurred for services. The final analysis will assess the extent to which additional charges impact property development within these municipalities. Development surcharges are the additional costs that are incurred during a development process. The tariff schedules for each municipality do not stipulate as to whether there are specific development surcharges applicable to the application fees for: zoning and rezoning, township establishment, subdivision, and building plan fees. 55

57 Municipalities were contacted to acquire the development surcharges for the above-mentioned applications. The development surcharges that are noted below were thus identified by municipal respondents. No municipalities from which feedback was received indicated a specific value as an additional cost for development. Five municipalities did provide values, but these were tariff costs and not surcharges. These figures were thus not incorporated into this section. The municipalities whom have explicitly identified no development surcharges are Mogale City, Emfuleni municipality, City of Cape Town and Rustenburg municipality, whilst Sol Plaatje municipality indicated that development surcharges are dependent on the application submitted and will be evaluated case-by-case. Nine municipal responses on surcharges have to date not yet been received. These municipalities are Ekurhuleni municipality, Msunduzi municipality, Mbombela municipality, Emalahleni municipality, Nelson Mandela Bay metro, Buffalo City metro, Polokwane municipality, Mangaung municipality and ethekwini metro. The surcharges established by service divisions are indicated in the tariff schedules for each municipality. As detailed in Section 74(2)(1) of the Municipal Systems Act (2000), provision for additional charges on a tariff may be made in appropriate circumstances. However, the act does not stipulate which circumstances are deemed appropriate. The surcharges indicated are therefore applied or charged by being incorporated into the tariff costs for the water, storm water, and sanitation and power divisions. All surcharges for each study area that have at this stage of the study been identified are outlined below. 3.1 CITY OF JOHANNESBURG The City of Johannesburg indicated no development surcharge that applies to the four development scenarios and costs. Concerning surcharges for service divisions, the water division has affected a 2% surcharge for business consumers for the 2012/13 financial year. No other surcharges were stated by the municipality. 3.2 CITY OF TSHWANE No development surcharges were identified by the City of Tshwane. With regard to surcharges within the electricity, water and sanitation service divisions, it is indicated in the tariff policy for City of Tshwane that any work that is done by the municipality for a consumer 56

58 or body will be charged for the actual expenses inclusive of labour, material, supervision, transport and the use of equipment. The surcharge that is payable is 13% on the amount with respect to overhead expenses and administration. This surcharge is applicable to the electricity division. The water and sanitation divisions charge for the same additional costs at 10% surcharge. 3.3 EKURHULENI MUNICIPALITY There are no known development surcharges as indicated by municipal respondents or in the applicable policies and schedules for Ekurhuleni municipality. 3.4 MOGALE CITY With regard to development surcharges, the Mogale City municipality has identified no surcharges applicable to the four development scenarios. Furthermore, there are no known surcharges specified in the applicable policies or schedules for Mogale City municipality. 3.5 EMFULENI MUNICIPALITY As with Mogale City municipality, the Emfuleni municipality has indicated that there are no development surcharges for the four development scenarios. There are similarly no known surcharges identified in the applicable policies or schedules published by the Emfuleni municipality. 3.6 CITY OF CAPE TOWN The City of Cape Town has similarly stated that they charge no additional fees for any of the four scenarios. Furthermore, there are no known surcharges outlined within their policies and schedules. 3.7 GEORGE MUNICIPALITY The George municipality has not indicated development surcharges relative to the development scenarios. With regard to the additional costs for service tariffs, there is no indication within the policies or schedules. 3.8 MSUNDUZI MUNICIPALITY 57

59 There has at this stage been no response from the Msunduzi municipality concerning development surcharges. Furthermore, there are no known additional charges stipulated within the policies or schedules of the service divisions. 3.9 MBOMBELA MUNICIPALITY The Mbombela municipality has not at this stage indicated surcharges for the development scenarios. Mbombela municipality outlines additional costs payable for the water and electricity divisions. With regard to the water division, the additional charges for connecting the premises of a new consumer to the main pipeline are relative to two circumstances. Firstly, the cost of material and labour is owed, and secondly, a 10% surcharge on an amount determined by the Director of Technical Services is payable. Concerning the electrical division, for the costs of connecting to a main supply, a consumer will pay for all associated costs as mentioned above, as well as a surcharge of 15%. A maximum of R3 763 will be levied for administration charges EMALAHLENI MUNICIPALITY At this stage of the study, there are no development surcharges identified. With reference to additional costs applicable for service divisions, a surcharge of 10% on the amount accrued from labour costs, equipment and transport costs, plus the average of these costs, is payable to the Emalahleni municipality. This surcharge is only applies to new connections in the electricity division NELSON MANDELA BAY METRO Concerning development surcharges, there has at this stage been no response from the Nelson Mandela Bay Metro. Furthermore, there are no known additional charges stipulated within the policies or schedules for the service divisions BUFFALO CITY METRO Similarly, concerning development surcharges, there has at this stage been no response from Buffalo City Metro. Furthermore, there are no known additional charges stipulated within the policies or schedules for the service divisions. 58

60 3.13 POLOKWANE MUNICIPALITY There has at this stage been no response from the Polokwane municipality with regard to development surcharges. Furthermore, there are no known additional charges stipulated within the policies or schedules for the service divisions MANGAUNG MUNICIPALITY Mangaung municipality has not responded to enquiries concerning development surcharges. Additionally, there are no known additional charges stipulated within the policies or schedules for the service divisions SOL PLAATJE MUNICIPALITY With regard to development surcharges, the Sol Plaatje municipality has indicated that an additional charge for applications is payable. These charges are dependent on the application submitted. With regard to service surcharges, there are no known costs outlined in the policies or schedules //KHARA HAIS MUNICIPALITY No development applicable surcharges have been noted in //Khara Hais. Similar to Sol Plaatje municipality, there are no known additional surcharges for services RUSTENBURG MUNICIPALITY Like Mogale City municipality, Emfuleni municipality and City of Cape Town, the municipal respondent for the Rustenburg municipality explicitly indicated that there are no development surcharges payable. With regard to service surcharges, there are no known costs outlined in the policies or schedules ETHEKWINI METRO At this stage of the study, development surcharges for the ethekwini metro have not been identified. Furthermore, additional charges for services are not identified in the policies and schedules for the municipality. 59

61 3.19 IMPACT OF SURCHARGES ON DEVELOPMENT Because surcharges are additional costs payable by developers, it is necessary to determine whether the charges that each municipality has identified as a surcharge will significantly alter the overall cost of development within a municipality. Due to the fact that the surcharge is an unknown during the project financial planning phase, it could have a severely unfavourable effect on the project cash flow. With regard to development surcharges, of the data the specialists have received, there are no specific values. Therefore, one may not attempt to calculate what the potential impact may be on development costs. Concerning the municipalities that have specifically indicated that there are no additional charges to development costs, it may be ascertained that there will be no impact on development costs for these study areas. As aforementioned, these municipalities are Mogale City municipality, Emfuleni municipality, City of Cape Town and Rustenburg municipality. Concerning the surcharges applicable to the service divisions, because of the variables that affect the value of the surcharge, the specialists are unable to equate a value to each scenario and quantify the economic effect thereof on the property industry. In conclusion, on account of the nature of the data available to the specialists, it is unclear as to the extent potential development surcharges and surcharges applied to service tariffs may have on the development costs of the delineated study areas. 4. MUNICIPAL RESPONSIBILITIES AND CHALLENGES The following section outlines the municipal responsibilities and challenges 14 regarding property development within the delineated municipalities. These responsibilities and challenges include the turnaround time for applications, whether overregulation and availability of land stymies development, the level of education and skills within the applicable departments, and infrastructural maintenance and development. This information is incorporated into four sections: degree and availability of suitably zoned land, administration effectiveness, regulation, and development of new infrastructure and maintenance. 14 It is important to note that the challenges identified within this section cannot be aligned with all the municipalities under analysis. 60

62 The purpose of this section is to identify possible constraints and causes of rising fees and tariffs as well as capacity issues that could cause delays in delivery and approvals. There are a multitude of relevant challenges which range from financial restraints to overregulation if stipulated. These responsibilities and challenges will be analysed, thereby enabling both property developers and municipalities to understand the development environment within each study area, as well as the challenges present. Importantly, this section of the study was developed to create an understanding of the municipal opinions concerning property development and the degree to which it is regarded by municipal respondents that development within their municipality is stymied by processes, personnel or extenuating circumstances. It is fundamental to gauge an indication from their perspectives. This is as it is noted from a developers perspective the impacts that municipal processes have on development if they are not adhered to. For example, a delay in the provision of a building plan approval may have significant financial impacts on a developer which were not previously factored into and therefore negatively impact the development as well as have negative implications on the perspective of future investors. Therefore, this section contributes to our understanding of why these potential challenges occur. Sixteen of the 18 municipalities being studied have responded. Nelson Mandela Bay Metro and Rustenburg municipality did not provide feedback requested. 4.1 APPROACH A qualitative survey directed to municipalities was the approach adopted to gather the information required for this section. The relevant municipal respondents were identified, contacted and then presented with the survey questionnaires. This approach enabled the specialists to obtain comprehensive insight into challenges, concerns and responsibilities prevalent in the study areas. Relative to the information gathered and the aim of the study, the responses have been collated and analysed below. It is important to note that a scoring system adopted in the costing and developers sections will not be applicable to this section due to the qualitative form of information gathered. Nevertheless, if there are acute discrepancies between the developer responses and scores, and municipal feedback, the scoring will be adjusted accordingly with an explanation provided. Furthermore, quotes have been inputted within the text. These quotes are from municipal respondents and were selected relative to how often the issue or statement was alluded to. In conjunction, the information has been supplied by municipal respondents and therefore falls under a confidentiality clause. Consequently, where information is deemed sensitive or confidential, the respondent and municipality will not be identified and information will be conveyed only in a combined format. 61

63 In view of the comparative purpose of the study, the Gauteng municipalities have been compared to the other study areas. 4.2 ANALYSIS AND FINDINGS DEGREE OF SUITABLY ZONED LAND Land availability is essential towards the facilitation of property development within an area. Of the 16 municipalities that have for this section responded, nine stated that there is sufficient suitably zoned land to facilitate development, two municipalities indicated the unavailability of suitably zoned land as a key problem, and the remaining five provided varying degrees of contention CHALLENGES Of the municipalities under analysis, the challenges identified by the study areas that verified their municipality does not to varying degrees have sufficient zoned land to cater for the development scenarios are the following: Developable land is becoming a scarce resource in a few Metro s whereby the result is the rezoning of agricultural land to other land uses and the moving of the urban edge. There is a strain on infrastructure with increased development, and where land is rezoned, major investment in bulk infrastructure is often required. Four of the municipalities attest that infrastructure maintenance and development is a key challenge. There is a challenge of congestion within CBDs, especially with the increase of small businesses that require office space. Illegal land uses have become problematic. Developments have been lost due to land that was not readily available for development to Key opinions: degree of suitably zoned land There is sufficient zoned land available for all the development examples except for Industrial zoned land... the land that is avaiable for Industries would need investment in bulk infrastructure, which is a big challenge. Developeable land is increasingly becoming a scarce resource. We are seeing agricultural zoned land being transformed to other use. In instances where there is a demand then there are applications for the change in land use. The recent city Spatial Development Plan addresses the concern. There has been a number of applications on the periphery of the City for other reasons one of them being cheaper land. There is however untaken land use rights in the city and that is sizable. ensue. 62

64 With regard to the Gauteng municipalities and the availability of zoned land conducive to the development of the residential, retail, commercial and industrial scenarios, all municipalities responded. These responses provide contending insight into the availability of suitably zoned land. Dependent on the respondent and municipality, it is confirmed that suitable land is available in certain areas and but areas of high demand is definitely evident in which suitable land is unavailable for development, whereby the lack of zoned land has led to loss of property investment. Nevertheless, where land is deemed unavailable, the required land use rights can be obtained upon application, however the process takes time and investment in infrastructure would potentially be required ADMINISTRATION EFFECTIVENESS To determine administration effectiveness within each study area, the specialists enquired the number of employees within the relevant departments whom dealt with applications. Enquiries included how many employees had degrees and what these degrees were. Finally, the respondents were asked whether maladministration was prevalent within their department and if this consequently deterred property development. Of the 16 municipalities who responded, 75% did not feel that maladministration hindered property development. Furthermore, of the four remaining whom referred to maladministration, only one municipality specifically focused on staff abilities. The other three municipalities cited capacity issues. Of the five responses from the Gauteng municipalities, four believe that there is no maladministration within the department that hinders property development CHALLENGES Key opinion: administration effectiveness Most of our processes are documented and staff should know what it is they should and should not do. We have process flows for the development application business processes and that is very clear for the staff and the applicant. 63

65 The municipalities that have referred to maladministration, specifically with regard to capacity issues in terms of staff, are the smaller municipalities. From the municipal feedback, it is evident that the smaller municipalities which have the least number of staff are unable to meet the level of competitiveness they intend REGULATION The feedback given by municipal respondents is equally distributed between agreement and disagreement when asked whether regulation or the existence of overregulation hinders property development. Of the responses, 50% agree with the statement. The remaining eight of the 16 municipalities stated that property development is not hindered by overregulation. Four of the respondents from the Gauteng municipalities disagreed with the statement that property regulation hinders development. The responses from the Gauteng municipalities included Key opinions: challenges Officials are not 100% committed and capacitated. Yes, maladministration has hindered development. The administrative wheels of such a big organization turn very slowly to the detriment of the developer. The capacity in terms of personnel is not enough to handle the number of development applications received. the following points: There is a feeling that developers ride the system and this often results in developments with low standards which the municipality is left to rectify. The regulations in place are therefore deemed as fundamental. The Spatial Development Frameworks give a clear guideline to development zones, yet municipalities are flexible if a proposed development is deemed meritable. Key opinion: regulation All the development management mechanisms currently in place are necessary if we are to have world-class sustainable cities. The tendency of the private sector is not investing enough time in the land clearance/development approval processes and when things don t go their way, everything becomes labelled as Red Tape. 64

66 The regulatory processes are required to comply with Section 19 of the Town Planning and Townships Ordinance, 1986 (ord 15 of 1986). One respondent states that whilst the system is fairly rigid which allows for certainty, it is flexible enough to deviate from guidelines if there are specific sites that merit an application. The municipality that believes that overregulation stymies development indicates that this is not concerning all regulation, but specifically with regard to bulk service contribution regulations CHALLENGES The key challenges noted by the six municipalities that believe that overregulation hinders property development within their municipality are as follows: Lengthy approval processes Key opinions: regulation Legislation allows for an inclusive, precise, uniform process all parties are given sufficient time to comment on applications; and decisions on whether to approve or refuse an application is informed by the respective utilities. I think there is a need for regulatory review appropriateness and whether it is onerous. There have been recent changes and approvals that should see a change to the current landscape. I think there should be a much more integrated approach and the creation of a more predicable environment. If there is over regulation then it must be addressed this has not been raised as an issue. Restrictive development plans and policies Skills capacity of employees 65

67 Key opinions: challenges Lack of adequate staff and occasional lengthy approval processes especially when reports are referred back by Committees for more information or clarity. Partly hindered by overregulation, but most parties who want to proceed with their proposals endured all processes that have to be followed. We have a moratorium on the selling of land placed on local authorities by SALGA for the past seven years which causes serious problems for development. Still awaiting delegation of powers from [omitted] Provincial Government to administrate development applications DEVELOPMENT OF NEW INFRASTRUCTURE AND MAINTENANCE The upgrading and maintenance of infrastructure is fundamental to the facilitation of property development. A limited capacity or outdated infrastructure contributes to the inaccessibility of a study area with regard to development and the prospect of greater costs. At the current stage of the study, in total, 16 of the 18 municipalities have responded. For each division, there has been the following number of responses: Power (12 responses) Water (15 responses) Sanitation (15 responses) Storm water (15 responses) Roads (14 responses) It is noteworthy that although 16 municipalities have responded, the surveys were not necessarily complete, therefore leaving gaps in the data. Table 4-1 illustrates the municipalities for which there are responses and the missing data. It is apparent that the challenges within each sector have received the least responses. From the data received, one my ascertain that there are current or on-going projects within different divisions for City of Johannesburg, City of Tshwane, City of Cape Town, George municipality, Msunduzi municipality, Buffalo City Metro, Polokwane municipality, //Khara Hais municipality and ethekwini metro. The scale and completion of these projects vary according to budget and importance. Projects provided by each municipality are tabulated in Annexure A. These projects as indicated in Table 8-2 are both on-going and planned for the 2012/13 financial year. Table 4-1: Data Captured for Municipal Capacity Surveys 66

68 current/ongoing projects Challenges in each sector Study areas storm storm power water sanitation roads power water sanitation water water roads Johannesburg Tshwane Ekurhuleni Mogale City Emfuleni Cape Town George Msunduzi Mbombela Emalahleni Nelson Mandela Bay Buffalo City Polokwane Mangaung Sol Plaajie Khara Hais Rustenburg ethekwini With regard to financing, the smaller municipalities are heavily reliant on external funding and grants, these being the Municipal Infrastructure Grants (MIG), Expanded Public Works Program (EPWP) and Lotto Funding. Key opinions: projects and development We have a R650 million backlog of replacing existing electricity network infrastructure. We are working according to the Master Plan as budget allows upgrading cables, switch gear, mini substations and substations to strengthen the backbone of the network to be able to accommodate new developments on the edge of urban areas. Had reached full capacity... Upgrade due to development within the area. Additional capacity to cater for planned RDP houses. Most of the projects and upgrades are reactionary to complaints that certain standards are not met. It is noteworthy that for many of the projects planned or on-going, these have resulted from the need to extend capacity due to either development or natural increased demand, and due to outdated infrastructure that requires maintenance or upgrading CHALLENGES 67

69 The challenges within each service division and municipality are in general in agreement in that infrastructure is outdated and problematic, the level of demand has increased and infrastructure capacity is pressured, skilled personnel are few and budgeting for each division is insufficient or limiting. These challenges are outlined below. Key opinion: challenges There are challenges with all Municipal services due to rapid development ELECTRICITY DIVISION Access to electricity is mandated as a basic right to all South African citizens. The power divisions for municipalities are therefore responsible for maintaining accessibility and providing the service of electricity to all citizens. The challenges within this division for City of Johannesburg, George municipality, Buffalo City Metro and //Khara Hais municipality to meet this mandate are as follows: Infrastructure is overloaded and outdated. Continuous and safe electricity supply to consumers is problematic. It is often on the onus of developers to contribute to the upgrading or to develop infrastructure. A shortage of skilled staff and vacancies. Delays in development, upgrading and maintenance due to drawn-out tender processes. Insufficient funding to achieve the objectives of the Master Plan. Consolidation and compliance between two power providers is at times challenging. Key opinions: challenges It is a huge challenge to keep a continuous and safe Electricity Supply to our existing consumers Developers have to pay Actual Costs to supply the new developments with an approved Electrical Consulting Engineer s design to ensure compliance with NRS 048 Quality of Supply to the new consumers. A severe shortage of staff most of the work has to be done by contractors. There are long delays in getting tenders awarded by Committees who do not understand the technical requirements WATER DIVISION 68

70 As with electricity, water is also a basic service to be made available and accessible. The challenges facing the Water divisions of all municipalities are similar to those of the Power division. As indicated in Table 4-1, the municipalities for which information is available at this stage are City of Johannesburg, City of Tshwane, George municipality, Msunduzi municipality, Buffalo City Metro and //Khara Hais municipality. The main challenges are as follows: Key opinion: challenges The DWA requires Gauteng municipalities to reduce water consumption by 15%... limiting scope for new developments. Water resource constraints which limits scope for development. Obtaining environmental approvals. Lack of funds and consequent reliance on external funding. Lack of internal personnel capacity and skills. Hired labour and contractors often do not work efficiently. Aging infrastructure and equipment. The infrastructure in a few residential areas has not been designed to accommodate the increased number of users, consequently putting increased pressure on infrastructure SANITATION DIVISION Key opinions: challenges There are personnel constraints we have only three people in the subsection. This situation is exacerbated as a result of additional projects increasing already heavy workloads, such as the Gautrain project, and support and technical inputs on various issues. Meeting both capacity and effluent standards are a challenge. The hiring of labour and having them work efficiently [is a challenge]. The access to and provision of sanitation services is in conjunction with the mandate that declares the provision of water and electricity services as a basic right. The challenges experienced by both the Power and Water divisions are the same challenges that the Sanitation divisions in the delineated study areas experience. In conjunction with Water services, the municipalities for which information concerning Sanitation is at this stage available, are illustrated in Table 4-1. These 69

71 municipalities are City of Johannesburg, City of Tshwane, George municipality, Msunduzi municipality, Buffalo City Metro and //Khara Hais municipality. These challenges are as follows: An insufficient number of personnel to complete and facilitate projects. Timeous project approvals and available funding. There is limited foresight and forward planning in the Budget concerning the upgrading and maintenance of infrastructure which is intended to cater for increased development. Inadequate funding. Outdated and overloaded infrastructure STORM WATER DIVISION Key opinion: challenge From my side it is always a challenge to get funding for storm water related projects as it is not very high on the priority list. That is until there is flooding, then there is an emphasis on storm water drainage. Table 4-1 illustrates the 15 municipalities for which Storm Water division data is available. The municipalities with outstanding feedback include Mogale City, Emfuleni municipality and Rustenburg municipality. The challenges for the Storm Water division are in general aligned with the previous service divisions analysed. Key opinions: challenges There is a large backlog in terms of drainage infrastructure, as it is mostly very old or inadequate. The current funding allocation is inadequate to deal with the current system deficiencies and more importantly, asset replacement that have reached the end of its design life. Severe weather events over the last five years that far exceed our design capacity which resulted in major damage of infrastructure funding inadequacies negatively impact on the ability for us to effectively react to these damages. Yearly expansion of networks within informal areas is addressed, but progress has been slow as funding still remains problematic. The general challenges for all municipalities are the following: 70

72 Outdated infrastructure. Insufficient funding for maintenance and infrastructure upgrades. A shortage of skilled and suitably qualified personnel. Constraining supply chain management policies. Slow reaction times to demand ROADS DIVISION Fourteen municipalities have at this stage provided information on the challenges for the Roads division. With reference to Table 4-1, the municipalities with information still pending are Mogale City, Emfuleni municipality and Rustenburg municipality. Equivalent to the Power, Water, Sanitation and Storm Water divisions, the challenges evident within the Roads division are the same that are apparent throughout the Service Divisions for all the municipalities discussed. These challenges are: Outdated and inadequate standard of infrastructure, unreliable and old machinery, insufficient funding, and unskilled personnel. Key opinions: challenges The biggest challenge facing the municipality is the need to maintain the almost 7 000km of surfaced network to an acceptable standard within the constraints of a limited budget. The majority of the network is old which puts increasing pressure on resources to be able to do this. The maintenance and upgrading of the un-surfaced network is an on-going challenge. Resources in the form of personnel and equipment are not adequate. 85% of the road network is gravel, [being a huge challenge for the development of the municipality]. 4.3 SUMMARY The municipalities that have responded total 16 of the 18 delineated study areas. The two municipalities whose feedback is outstanding is Nelson Mandela Bay Metro and Rustenburg municipality. Of the 16 respondents, all 16 provided information for the capacity questions concerning administration, regulation and zoning and land-use. With regard to the development of infrastructure and maintenance, Table 4-1 illustrates the nine municipalities whom have responded City of Johannesburg, City of Tshwane, City of Cape Town, George municipality, Msunduzi municipality, Mogale City, Polokwane municipality, //Khara Hais municipality and ethekwini metro. 71

73 From the feedback garnered, it is evident that for each municipality relative to singular circumstances the challenges and scope of departmental abilities to facilitate property development varies. Furthermore, the information gathered confirms the sections and divisions for which each municipality requires further valuations an additional study for each municipality would be necessary to develop an in-depth assessment. Concurrently, this section of the study has provided an analysis that enables one to determine the fundamental wide-ranging factors that in general the study areas display and have outlined. Of the responses that have been submitted, one may determine the following: Municipalities rely largely on external funding. The majority of the larger municipalities specifically the Metro s have sufficiently zoned land, yet there are indications that the rezoning of land and development of new infrastructure is required when development is to occur. There are mixed views about the prevalence of maladministration. When maladministration is acknowledged as discouraging development in some municipalities, the overarching reasons are capacity issues and a lack of skills. There are mixed views about whether overregulation is prevalent and whether it stymies development. With regard to the service divisions and infrastructure for power, water, roads, storm water and sanitation, there are general consistent challenges across the study areas. These are inclusive of budget restraints that result in a backlog of projects, outdated infrastructure and unskilled or uninformed personnel. The majority of the challenges in the service divisions are as a consequence of financial restraints and increased demand and pressure on service provision and infrastructure. Personnel capacity issues are another challenge, as well as the availability of basic resources. For example power and water constraints. Importantly, the information gathered is subjective and therefore poses a limitation towards determining the true extent to which these perspectives are reliable. There is no further data that enables specialists to quantify and economically analyse the impacts municipal processes have on property development. Furthermore, the missing data provides further limitations towards a clear and complete analysis. From the information gathered the following key issues have been identified: Sufficient suitable land is unavailable in areas with high demand and rapid development. Regulatory process, although slow, is important to ensure developments adhere to all requirements to ensure quality and sustainable developments. However, this should not be an excuse to justify unnecessarily delayed approvals. Limited staff has been indicated as a major capacity issue as municipalities can t keep up with rapid development, however it is difficult to actually assess if the capacity available is sufficient. 72

74 Delayed delegations of powers from top government structures are identified as a source contributing to local municipalities being unable to perform functions. Outdated infrastructure that requires maintenance and upgrades is a driver of tariff and cost inflation. 4.4 GAUTENG SUMMARY All five of the metro and district municipalities for the Gauteng province have responded, of which all respondents provided feedback on regulation, administration, zoning and education, whilst only the City of Johannesburg and City of Tshwane provided data outlining the challenges within divisions for the service divisions. To summarise, three of the Gauteng respondents state that there is not sufficient availability of zoned land for property development this problem is especially evident in the high demand urban markets. In conjunction to four of the Gauteng respondents who have stated that maladministration is non-existent within their municipalities, one municipal respondent has indicated that bad administration is prevalent, consequently stymying property development. One of the municipal respondents for the Gauteng municipalities feels that overregulation inhibits development within their vicinity, and that this is specifically with regard to the regulatory policies concerning bulk service contributions. 73

75 5. PROPERTY DEVELOPERS: KEY ANALYSIS This section provides insight into the perspective of developers with regard to doing property related business and undertaking development projects with municipalities. The study focus was to undertake the analysis for all of the 18 delineated municipalities, however due to limited response rates, some municipalities were omitted from the analysis. The degree to which developers rate their experience of developing within a municipality confirmed as positive or undesirable will be analysed in total. The rateable experiences for each municipality are: application turnaround times and administration effectiveness and efficiency, the degree of suitably zoned land, the costs related to town planning, building plan, subdivision, rezoning, connection and EIA fees, the costs related to consumption charges, service contributions and land rates, and the efficiency of infrastructure, maintenance and infrastructure development. 5.1 APPROACH Online quantitative surveys were submitted by SAPOA to a total of 391 selected respondents active within the South African property industry. To ensure that sufficient feedback was gathered, the surveys were re-submitted to respondents that have not taken part in the first request, to attempt to facilitate a more accurate and representative opinion. The survey 15 was constructed with identical questions for all 18 municipalities. Each municipality had an identical table whereby developers were provided with a rating table to rate their business and conduct experience with municipalities from 1 5, 5 being excellent and 1 being terrible. Annexure C provides a template of the survey submitted for City of Johannesburg, demonstrating the rating system as well as the rateable indicators. In total, 74 (19%) of the total 391 developers responded. In descending order, the municipalities that received the most feedback are the City of Johannesburg, the City of Cape Town, Ekurhuleni municipality, and the City of Tshwane. The remaining 14 municipalities did not receive sufficient feedback to sanction a detailed analysis. On account of the limited feedback for the 14 municipalities other than the City of Johannesburg, the City of Cape Town, Ekurhuleni municipality, and the City of Tshwane, these municipalities will not be included in this analysis as the results for these areas is perceived to provide an untrue reflection of property development for these study areas will be created. 15 A template of the developer s survey is available in Annexure C. 74

76 The aim of this section is to provide a customer feedback or service rating for the municipalities analysed. The survey layout enabled specialists to collate the data numerically to ultimately provide a comparison for each of the rateable experiences. The total percentage for each experience is tabulated. 5.2 KEY INDICATORS To determine a comparable service rating for the delineated study areas, the indicators detailed within the developer survey are collated into sections of town planning, costs, and administration. These sections are structured to streamline assessment and analysis of the municipalities. The key indicators are highlighted below. TOWN PLANNING The indicators for town planning include: Application turnaround time Township Establishment fees Re-zoning fees Zoning fees Building Plan submission fees EIA fees Subdivision fees COSTS The indicators for Costs include: Service contributions Service connection fees Consumption charges Development surcharges Service costs Vacant land rates Property rates Municipal tariffs ADMINISTRATION The indicators for Administration include: Suitably zoned land 75

77 Administration effectiveness Municipal abilities Transport efficiency Security efficiency Housing efficiency Infrastructure maintenance Service contributions Regulation 5.3 SERVICE RATING This section provides an analysis of the customer satisfaction feedback from developers for the City of Johannesburg, the City of Cape Town, Ekurhuleni municipality, and the City of Tshwane. The rating and analysis for each municipality or metro is outlined below. It is important to note that the ratings are from the perspective of developers and should therefore be considered subjective TOWN PLANNING As aforementioned, the section for town planning in the developers survey includes several indicators. A rating for each indicator was applied to each municipality. These results, which illustrate the developers perspectives concerning the indicators for Town Planning, are illustrated below. Table 5-1 shows the total scores for each municipality for the seven service indicators. Furthermore, the percentage for each indicator is indicated. This percentage is calculated relative to the highest possible score that each indicator could have achieved. For example, considering re-zoning fees, if all developers gave a 5 rating, the municipalities in total would have scored 405 points. Thus, 204 points equates to a 50% score. Table 5-1: Developers Rating for Town Planning Indicators Town Planning Score % Application turnaround time % Township establishment fees % Re-zoning fees % Zoning fees % Building plan submission fees % EIA fees % Subdivision fees % TOTAL SCORE % With respect to Table 5-1, it is evident that the turnaround times for all four municipalities have scored the lowest at 148 points, equating to 36%. In conjunction, the highest rating for the service 76

78 indicators is the costs of building plan submissions. This received a 54% score. It is therefore apparent that developers feel that the turnaround time of applications for the City of Johannesburg, the City of Cape Town, Ekurhuleni municipality, and the City of Tshwane is poor. The other service indicators have a score of 50% or above. The overall impression developers hold for the costs of Town Planning fees and the efficiency of processing applications is indicated by the total number of votes received for each indicator. More than half of the votes received for Town Planning are designated to the average score of 3. The remaining 43% of the ratings are distributed across below average (22%), bad (19%), and above average (7%). The highest score, excellent, was not elected by any respondents. In total, the municipality for whom the developers best rated for service and costs within Town Planning is both the City of Tshwane and Ekurhuleni municipality, each scoring 51%. The City of Johannesburg with a 49% score and the City of Cape Town scoring 48% follow COSTS The costs for development are related to all additional charges and fees that are not included in applications for development. Therefore, the results for this section will reveal whether the developers who responded feel the charges of each indicator for either municipality or metros are over-priced or reasonable. These cost indicators are mentioned above in the section outlining the key indicators. Similar to Table 5-1, Table 5-2 highlights the scores received for all four municipalities being analysed. These scores are awarded relative to the costs associated with the development of property. Therefore, each cost indicator has been rated according to value. Similarly, the score as a percentage is given. The rating system from 1 5 as previously described has been applied. Thus, the indicator with the lowest score is rated as charging the highest costs. Table 5-2: Developers Rating for Costs Indicators Costs Score % Service contributions % Service connection fees % Consumption charges % Development surcharges % Service costs % Vacant land rates % Property rates % Municipal tariffs % TOTAL SCORE % With regard to all municipalities, the respondents rated the costs associated with property development with a total score of out of points, therefore equating to 46%. The scores highlighted in Table 5-2 range from the lowest at 176 for service contributions, to the highest at

79 for vacant land rates. When including the total possible score for each indicator into the equation, developers rated both consumption charges and service contributions as the most expensive costs at 33%. Vacant land rates are rated as the most affordable cost. Pertaining to the scores for the individual indicators, there were no responses for excellent. In total, 24% of the responses were for the bad rating, followed by 31% of the responses for below average. The average rating had the highest number of votes with 245 (38%) out of 651. There were 48 (7%) ratings for above average. With reference to the municipal services costs associated with property development, the municipality for whom the developers awarded the best rating is the City of Cape Town. The metro received 468 points for all costs, which equates to 51% when including the number of respondents who participated in the rating. The City of Cape Town is followed by Ekurhuleni municipality which scored 50%. The City of Tshwane scored 46%, whilst the most expensive study area is the City of Johannesburg receiving 39%. The total score for all municipalities when determining the perspective of developers concerning the value of costs related to property development is 34% ADMINISTRATION The service rating for administration will illustrate the opinion of developers with regard to the nine indicators included in this section. Together with Town Planning and Costs, the Administration section provides an overview of customer satisfaction regarding the service that municipalities provide to property developers. Table 5-3: Developers Rating for Administration Indicators Administration Score % Degree of suitably zoned land % Administration effectiveness % Abilities of municipalities % Transport efficiency % Security efficiency % Housing efficiency % Level of infrastructure maintenance % Development of new infrastructure % Regulation % TOTAL SCORE % Table 5-3 highlights the scores for the four municipalities under analysis. In conjunction with Table 5-1 and Table 5-2, the scores indicate the perception of developers. Table 5-3 specifically indicates scoring with regard to administration efficiency and effectiveness. 78

80 In total, the City of Johannesburg, the City of Cape Town, Ekurhuleni municipality, and the City of Tshwane scored points for administration. This score, when calculated to include the number of developers who submitted ratings, amounts to a 41% grade. The service indicator which has the worst rating is the effectiveness of administration, for which developers rate the service at 34% for all municipalities. The highest score of 182 out of 405 (45%), was awarded to the indicator detailing the degree to which developers perceive availability of suitably zoned land. In conjunction with the indicators for town planning and costs, there were no scores of excellence for the administration service indicators. Of the total ratings for all the administration indicators, the below average rating had the highest number of ratings with more than a third of the total responses. The bad rating followed closely with 34% of the responses. An average score was delegated 176 votes (24%), with above average receiving 7%. With regard to the developer s perspectives of individual municipalities for the service rating of administration, as with the ratings for costs, the City of Cape Town has the highest rating. The metro received a score of 48%. The metro with the lowest score is the City of Johannesburg which scored a low 34%. The City of Tshwane was awarded 45%, followed by Ekurhuleni municipality with 40%. 5.4 SUMMARY The study areas for which sufficient data was available were rated from the perspective of property developers. Service ratings were applied to enable specialists to determine the level of customer satisfaction felt by property industry players. Additionally, the indicators which were rated by developers were summarised into three key service indicators: town planning, costs and administration. From the data received, one may determine that the municipality for which the highest rating was awarded is the City of Cape Town. This is illustrated in Table 5-4. Table 5-4: Total Score for Municipality Study Areas Scores Total available points % Johannesburg % Tshwane % Ekurhuleni % Cape Town % Total % Of all four municipalities analysed, the City of Johannesburg has the lowest total score of 40%. This score is lower than the total score awarded at 45%. The City of Tshwane and Ekurhuleni municipality have an equal score of 47%. 79

81 It is therefore evident that the developers who responded felt that in total, the City of Johannesburg offered the worst service considering the costs and efficiency of town planning, development costs, and administrative efficiency. Essentially, the customer satisfaction is 40%. In total, none of the municipalities received a score above 50%. With regard to the responses and ratings for each indicator, Table 5-5 illustrates in what way the developers responded to each section. Table 5-5: Total Responses for Each Indicator Key Indicators bad below av. average above av. excellent total ratings Town Planning Costs Administration TOTAL SCORE % 27% 30% 37% 7% 0% 100% It is evident in Table 5-5 that the most commonly using rating was average at 37%. For the remaining ratings, 30% of all choices were for the below average score, followed by bad with 27% of the responses. For all indicators, none of the municipalities received an excellent score, whilst only 7% of all the ratings were for above average. It is therefore apparent that property developers feel that service satisfaction ranges from average to bad in descending order. There were no excellent ratings, and only 7% of responses in total were awarded to above average as a service rating. Furthermore, the three municipalities from the Gauteng province scored lower than the City of Cape Town. Importantly, as aforementioned, these results are subjective. It has been widely expressed that municipal processes are too slow and that this causes additional financial constrain to developers due to increasing cost of capital and interest repayment which could sink a project. For this reason, the recommendations in this document will deal specifically with administrative effectiveness and improved turn-around times. 80

82 6. SUMMARISED COMPARATIVE PROFILE This section provides a visual illustration in the form of a map to summarise the results garnered from the data that has been processed and analysed within the previous chapters. The purpose of the summarised comparative profile is to provide a broad strategic view of the current reality conducting development business. The profile aims to illustrate municipalities in context to affordability, capacity to accommodate development and general perception of developers on conducting business with these municipalities. The data for the 18 delineated municipalities is provided in Figure 6-1. Each municipality is represented in a block with its associated results. The cost indicators have been quantified in terms of the different development scenarios illustrated by means of a colour legend. The rating was determined by applying a cold academic approach to the raw data and should thus be viewed in that context. The services costs of property development within the municipalities is the key influential factor of the profile, augmented by the customer rating from developers. The information gathered from the municipal respondents is not included in this comparison, as as aforementioned; it is not quantifiable but is included mainly for the recommendations for development. The value labelled costs is the final score that the study areas received for the costs of developing property within each municipality. Furthermore, with reference to the results for the developer service ratings, noted in the matrix as customer ratings, all the municipalities other than the City of Johannesburg, Ekurhuleni municipality, the City of Cape Town and City of Tshwane, have been awarded the average of 45% as specified in Table 5-4. This was necessary as it was not possible to provide individual service assessments for the remaining 14 study areas. Consequently, the results reflected in Figure 6-1 are provided as a visual comparison of all the study areas, yet should be assessed alongside each chapter. This is as the figures could subsequently be misinterpreted if the report as a whole is not taken into consideration. To achieve the final rating for each municipality from 1 to 18, 1 being the highest scorer and the allround best performer in terms of a development-friendly environment, the scores from both costs and customer ratings were added. It is therefore evident in Figure 6-1, that the best performing municipality is Emalahleni municipality, whilst the lowest municipality is Mangaung municipality. Again, these scores should be assessed alongside the chapters which provide explanations for the results illustrated. 81

84 Industrial development See Table 2-24 Customer rating: Service rating by developers See Table 5-4 In review of the comparative profile, it is evident that a number of smaller municipalities outperform the larger metros. These include Emalahleni, //Khara Hais and Midvaal. Possible reasons for this could allude to the fact that these municipalities want to draw development to their respective areas. In terms of this profile, the best performing metropolitan municipality is the City of Cape Town, with the majority of Gauteng municipalities scoring average (7.9) to lower (15). It should be stressed that in order to ensure the competitiveness of Gauteng, municipalities of the Gauteng province should streamline their processes and ensure their rates and tariffs are market related. It should also be stated that due to higher demand and thus more rapid on-going development, Gauteng and other urban municipalities are often under more pressure. Taking a strategic view, in terms of the rating, it must be stated that overall, there are small differences in the performance of municipalities that have no identified outliers and thus results are relatively comparable. A similarity in challenges faced by municipalities is also noted. 6.1 ECONOMIC INDICATORS AND PERFORMANCE The purpose of this section is to review the key economic indicators and relate the results with the above Comparative Matrix (Figure 6-1), in order to strategically gauge whether the high municipal development costs have indeed caused significant economic detriment to development. The economic indicators will subsequently allow the specialists to address the low or high costs outlined in Figure 6-1 by determining a comparative economic baseline of the study areas. The economic indicators employed for all municipalities are the average annual growth rates (AGGR) for: The GVA (Gross Value Added) Population Household Disposable Income The period prescribed to these growth rates for the economic indicators is from 2006 to 2011, therefore providing an indication of the population and household income growth, as well as the GVA growth for each municipality for the past five years. The data used was sourced from Quantec, a consultancy that provides economic and financial data. These indicators are relevant to this particular study as they provide a baseline upon which to gauge the development across each study area. In summary, household income and population growth rates are indicative of employment opportunities, access to services, improved living standards and an increased or decreased demand for output. The average growth rate of the GVA measures the output of a region over a period of time. The indicators are thus important for planning purposes. This is as they provide insight into a study area and the trends evident for the economy and social 83

85 structure over a period of time. One will thus be able to determine the degree to which an economy is/ has been/ will be conducive to development. The growth rates as opposed to the actual values are used because they provide a more representative illustration of the study areas. This is as an analysis of the total figures does not indicate trends. This is as the municipalities vary in size, capacity and role, and therefore this would create an unreliable analysis of the growth and development within each municipality. Figure 6-2 provides an illustration of how global and national events have an impact of the national economy. The contraction of the European economy and global financial crisis coupled with the local electricity crisis had significant spin-offs on the South African economic climate. These spin offs are illustrated by the fluctuations of the GVA and population curves in Figure 6-2. It is important to create a macroeconomic baseline to interpret the economic indicators for each study area as a consequence of the global and national markets, as these will have direct, indirect and induced impacts on development. Figure 6-2: Growth Rate of the GVA, Population and Disposable Income for South Africa between 2001 and 2011 with Global Trends (Constant 2005 Prices) 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% slowdown of the European rand depreciation low interest rates, high consumer expenditure GVA 2.8% 3.7% 3.0% 4.5% 5.3% 5.5% 5.6% 3.8% -1.4% 2.9% 3.0% Population 2.7% 4.0% 2.7% 6.0% 5.9% 7.3% 5.2% 2.3% -1.1% 4.2% 5.2% Household income 1.3% 1.3% 1.3% 1.3% 1.3% 1.2% 1.2% 1.2% 1.2% 1.1% 1.1% GVA Population Household income global financial and local electricity crisis Source: (Quantec, 2012) It is evident that the growth rates of the GVA, and population for South Africa are significantly impacted by the events indicated. This is as consumer and foreign demand and trade have indirect impacts on both the primary and secondary sectors, specifically manufacturing and mining. These sectors are also very closely integrated with one another and the tertiary sector. Therefore, contractions in demand will significantly impact the local economy. Similarly, the degree to which the economy is diversified and reliant on sectors especially sensitive to trade, lends to how 84

86 significantly it is impacted. With regard to population, migration trends and population growth are interrelated to cost-of-living and the ability of an area to provide employment and social security. Importantly, this section will not provide a comprehensive in-depth analysis of each municipality. Essentially, the degree of analysis that would be required for such a study is not within the scope for the analysis AVERAGE ANNUAL GVA GROWTH RATE FOR ALL STUDY AREAS The GVA of a municipality is the measure of the value of goods and services produced. It essentially provides a value of the output of a region. In contrast to the GDP, the GVA is not used to measure the national output. This is as the total aggregates of taxes and subsidies on production are not available on a regional basis. In effect, with regard to the study areas, the GDP as an indicator is not applicable, therefore providing an explanation for the use of the GVA as opposed to the GDP. Figure 6-3: Average Annual GVA Growth Rate ( ) for Study Areas (constant 2005 prices) Source: (Quantec, 2012) 85

87 Figure 6-3 provides a visual illustration of the difference in average annual growth rates for the 18 study areas. Colour coding is used to more clearly illustrate the range in which each municipality falls. The average annual GVA growth rates from 2006 to 2011 range from the lowest rate of 0.17% for the Nelson Mandela Bay metro, to the highest AAGR of 4.35% for Mogale City. From Figure 6-3, one may determine that the municipalities which have the lowest AAGRs for 2006 to 2011 are Nelson Mandela Bay metro (0.17%) and the Emfuleni municipality (1.08%). The growth rates for these municipalities fall below 1.5%. It is evident that the majority of municipalities AAGRs fall within the range from 1.51% to 3% growth. These municipalities are //Khara Hais municipality, Sol Plaatje municipality, Buffalo City metro, ethekwini metro, Emalahleni municipality, Rustenburg municipality and Polokwane municipality. The municipalities that have the highest AAGRs for that period are all within the Gauteng province the City of Johannesburg, City of Tshwane and Mogale City. Concerning the remaining municipalities within this region, Ekurhuleni municipality has an AAGR of 3.14% and Emfuleni municipality a low 1.08%. Table 6-1: Comparison of GVA AAGR ( ) to 2011 Growth Rate for all Study Areas (constant 2005 prices) Source: (Quantec, 2012) STUDY AREAS AAGR ( ) 2011 Growth Rate City of Cape Town 3.6% 3.0% George Local Municipality 3.3% 3.6% Buffalo City Local Municipality 2.5% 2.1% Nelson Mandela Bay Metro 0.2% 0.6% //Khara Hais Local Municipality 2.5% 1.6% Sol Plaatjie Local Municipality 2.1% 2.5% Mangaung Local Municipality 3.4% 2.4% Msunduzi Local Municipality 3.1% 2.2% ethekwini Metropolitan Municipality 2.6% 2.4% Rustenburg Local Municipality 2.1% 3.6% Emfuleni Local Municipality 1.1% 2.6% Mogale City Local Municipality 4.3% 3.9% Ekurhuleni Metropolitan Municipality 3.1% 3.8% City of Johannesburg Metropolitan Municipality 4.3% 3.8% City of Tshwane 4.2% 3.1% Emalahleni Local Municipality 2.1% 2.4% Mbombela Local Municipality 3.5% 2.5% Polokwane Local Municipality 2.4% 1.7% Importantly, none of the municipalities had a negative average annual GVA growth rate for this period. This is significant considering the global financial and local electrical crisis s in The 86

88 impact these crisis s had on the study areas economies was however significant. In 2009, all municipalities other than the City of Tshwane which had increased growth from 2008 to 2009 of 2.6% and 3.1% respectively, had a negative growth rate for their GVA (constant 2005 prices) (Quantec, 2012). The municipalities with slowest growth rates were the Emfuleni municipality with negative 10.4%, Nelson Mandela Bay metro with negative 4.6%, and Emalahleni municipality, Ekurhuleni municipality, and Rustenburg municipality with negative 4.2%, 3.5% and 3.2% respectively (Quantec, 2012). The negative 10.4% growth rate for the Emfuleni municipality is a manifestation of the extreme contraction of the manufacturing sector during this period. In constant 2005 prices, the total growth rate of the GVA for this sector was negative 29% (Quantec, 2012). The positive growth of 15% from 2008 to 2009 for the construction sector for the City of Tshwane may be a reason for this positive growth (Quantec, 2012). The construction sector for all municipalities was high during the preceding years to the 2009 local and global financial contractions. The construction sector for all 18 municipalities remained at a positive growth throughout the 2008 and 2009 economic stagnation (Quantec, 2012). For many municipalities, this sector actually experienced a higher growth rate than the previous year. These municipalities are the City of Tshwane, with an increase from 10% growth for 2007 to 2008, to 15% growth for 2008 to 2009, Buffalo City for the same periods respectively have growth rates of 9% and 12%, Nelson Mandela Bay at 6% and 10%, //Khara Hais with growth rates of 10% and 14%, Sol Plaatje municipality with 4% and 9%, Mangaung municipality with 9% and 13% and ethekwini metro with 7% and 8% (constant 2005 prices) (Quantec, 2012). As aforementioned, the growth of the GVA is an indication of the output per region. A continued growth or contraction of output is thus an indication of the degree of development and sustained activities for sectors of the local economies. Thus, with regard to the growth rates for 2010, in relation to the AAGRs ( ) in basic 2005 prices for all study areas, one will be able to determine whether slower growth rates for 2006 to 2011 have impacted current output and development. Table 6-1 provides an illustration of the AAGRs ( ) in constant 2005 prices relative to the 2011 growth for the 18 study areas. It is thus apparent in Table 6-1 that a total of 11 of the municipalities have a contracted growth for 2011 compared to the AAVR for The most significant decline in growth is evident for the City of Tshwane with a 1.1% difference in growth (Quantec, 2012). The municipalities who have an increase in growth of their GVA for two growth indicators are George municipality with an increase of 0.3%, both Nelson Mandela Bay and Sol Plaatje with an increased difference of 0.4%, Ekurhuleni metro (0.6%), Emalahleni municipality with 0.3% difference, and 1.5% increase for both Rustenburg local municipality and Emfuleni municipality (Quantec, 2012). It is important to note that an increase in growth is not indicative of the municipalities that have the highest output in basic prices. Instead, as previously discussed, relative to the decline of the GVAs from 2008 to 2009, a quicker growth rate indicates an increased degree of output from 2010 onwards. These municipalities, other than George municipality and Emalahleni municipality which both had increased government activity in the tertiary sector, all showed an increase in output in the primary and secondary sectors (Quantec, 2012), thus signifying increase demand and development. 87

89 6.1.2 AVERAGE ANNUAL GROWTH RATE OF THE POPULATION FOR ALL STUDY AREAS Population growth rates are an important economic indicator. This is as a growth or decline in population is generally a reflection of the employment and social opportunities within an area. In conjunction, these opportunities are in general significations of development and general growth. The reflection of the growth rate of the output of an area relative to population growth is illustrated for South Africa in Figure 6-2. Figure 6-5 illustrates the study areas and the AAGR for the population between 2006 and It is evident in Figure 6-5 that the population growth ranges from 0.1% for the lowest for the George local municipality, to the Emalahleni municipality having an AAGR of 4.9% (Quantec, 2012). The municipalities that fall within the red are, inclusive of George municipality; Nelson Mandela Bay, Buffalo City metro and Emfuleni local municipality. Six municipalities had AAGRs between 2006 and 2011 ranging from 2.01% to 2.5% (Quantec, 2012). Figure 6-4: Average Annual Population Growth Rate ( ) for all Study Areas Source: (Quantec, 2012) 88

90 With regard to the association between employment opportunities and population growth, the link between the population migration trends for this period and employment losses and creation clarify the relationship. Furthermore, employment losses and population growth trends similarly indicate the growth for a region s GVA. Therefore, to understand the population AAGR s illustrated within Figure 6-5, it is necessary to compare population migration trends to employment opportunities. In concurrence, significant employment losses within the sectors of the economy between 2006 and 2011 are as follows: The total loss of jobs between 2006 and 2011 within the agriculture sector was more than half a million at (Quantec, 2012). An increased loss of employment within the agriculture sector contributed to an in-migration trend of rural-based people relocating to urban centres. Job losses in manufacturing ( ) and construction ( ) are evident for this period (Quantec, 2012). Considering the areas under analysis, the most significant decreases in output in constant 2005 prices for manufacturing between 2006 and 2011 is illustrative in the growth rates of 2008 and 2009 for all the study areas (Quantec, 2012). These sectors are noteworthy absorbers of the migrant labour force of South Africa, and therefore an increased out-migration of migrant labourers would be prevalent within areas where jobs were lost. There were employment losses within the wholesale and retail sector which indicates a decrease in demand and loss of spending power for the population. Firstly, before the population growth rate for 2011 is compared to the AAGR ( ), it is important to note that the predominant migration trend noted for South Africa is the relocation of job seekers to mega-cities and coastal regions (Cross, 2009). This is as infrastructure, employment opportunities and service provision are key drivers of migration (Cross, 2009). Thus, population growth for mega-cities and primary service nodes may not necessarily be affected by employment losses within their region, but by in-migration from other study areas. Population growth in 2011 for the 18 municipalities, compared to pre-2009, has contracted (Quantec, 2012). This is specifically with regard to regions whose economies are significantly impacted by the primary and secondary sectors, in which labour absorbing industries are prevalent. The municipalities whose population growth for 2011, are greater than the AAGR for the past five years illustrated in Figure 6-5, are George municipality, Buffalo City, Nelson Mandel Bay metro, and two municipalities within the Gauteng province being Emfuleni and Ekurhuleni municipalities (Quantec, 2012). Importantly, other than the George municipality which shows an increased growth relative to the negative growth rate from 2008 and 2009, the remaining four municipality s growth rates have remained constant (Quantec, 2012). For these reasons, the growth rate for 2011 is higher than the AAGRs. The population growth relative to the two growth indicators for the remaining 13 municipalities shows a decline in This may be reflective of a stabilising national economy, therefore resulting in a slower migration of job seekers. 89

91 6.1.3 AVERAGE ANNUAL GROWTH RATE OF THE DISPOSABLE HOUSEHOLD INCOME FOR ALL STUDY AREAS Disposable income per household indicates the spending power and welfare of a region. It is directly linked to inflation rates whereby income out-ways inflation. Essentially, an increased demand for goods and consequently an increase in output can be expected with a growth in disposable income, as well as a higher standard of living. With regard to South Africa, this indicator is relevant as development is aligned with higher standards of living and service and goods demands. Essentially, the regions in which disposable income per household displays the quickest growth rate would direct one to the areas wherein development and employment has increased. Figure 6-5: Average Annual Household Disposable Income Growth Rate ( ) for all Study Areas (constant 2005 prices) Source: (Quantec, 2012) As indicated in Figure 6-7, the AAGRs for household disposable income for all the study areas between 2006 and 2011 in basic 2005 prices range from 0.2% to 6% (Quantec, 2012). The municipalities which have had the slowest AAGRs for 2006 to 2011 are Rustenburg municipality (0.3%), Emfuleni municipality (0.2%), Msunduzi municipality (1.2%), Nelson Mandela Bay 90

92 municipality (0.6%) and Buffalo City (1.9%) (Quantec, 2012). These municipalities fall within the lowest range of 0.19% to 2%. There are two municipalities that fall within the highest growth range, these being the City of Johannesburg with an AAGR for household disposable income at 6%, followed by //Khara Hais with an AAGR of 5.2% between 2006 and 2011 (Quantec, 2012). There were similarly high growth rates which are above 4% for three of the municipalities within the Gauteng province City of Tshwane, Mogale City and Ekurhuleni metro. The AAGR of disposable income per household similarly fell within this range for the Mbombela municipality whose growth was 4.4% (Quantec, 2012). Importantly, when there is increased output, there are induced impacts that impact the growth of income per household of both households wherein the work force reside, as well as from those employed by supporting industries. Therefore, an increased growth rate in the GVA of an area should signify an increase in living standards, and thus disposable income per household. This pattern is evident for The City of Johannesburg with an AAGR for their GVA between 2006 and 2011 of 4.32% in constant 2005 prices, and an AAGR of 6% for household disposable income (constant 2005 prices) (Quantec, 2012). In conjunction, the City of Tshwane had AAGRs for these indicators at 4.25% and 4.4% respectively, Mogale City with 4.35% and 4% growths and Mbombela municipality showing related growth rates of 3.52% for the GVA in basic prices, and 4.4% growth of household disposable income (Quantec, 2012). The City of Cape Town and Ekurhuleni municipality had similar comparability s between the AAGRs for the economic indicators of GVA and household disposable income for the 2006 to 2011 years of 3.6% for both indicators for the City of Cape Town, and 3.14% and 4.2% respectively for Ekurhuleni municipality. Relative to the growth rates for the other municipalities, //Khara Hais Local municipality had a slow AAGR for their GVA of 2.45% (constant 2005 prices). In conjunction, the AAGR for increase in household disposable income was the second to fastest after the City of Johannesburg at 5.2%. This fast growth may be attributed to the tertiary sector that continued to provide employment opportunities for the 2006 to 2011 period, at a total of 91% (Quantec, 2012). This sector is predominantly constituted of semi to skilled labourers which receive a higher income and therefore contribute to the AAGR of total household disposable income. A comparison between the AAGR ( ) for household disposable income with the 2011 growth rates provides insight into the degree of growth for demand and consumption, as well as an increased standard of living within an area. These development indicators inherently indicate the development of an area. Of the 18 study areas, the 2011 household disposable income growth rate (constant 2005 prices) for seven municipalities is less that the AAGR ( ). The most significant difference between these growth rates is evident for Emalahleni municipality, which is 2% (Quantec, 2012). This is as the growth of disposable income for this study area fluctuated from 9.3% growth in 2006, to negative 1.3% in 2009, and a growth of 5.7% in 2010 (Quantec, 2012). These fluctuations contribute to the average growth of 3.8% (Quantec, 2012). Therefore, the growth rate in 2011 of 1.8% indicates a decline in income levels. The three municipalities with the most significant difference in growth for 2011 compared to the AAGR ( ) are all located within the Gauteng province. These municipalities are the City of Johannesburg, Mogale city municipality and Ekurhuleni municipality. The AAGR in constant 2005 prices between 2006 and 2011, compared to 91

93 the growth rate of 2011 for the City of Johannesburg is 6%, and 7.5% respectively. For the same growth indicators, the Ekurhuleni municipality and Mogale City have difference in growth with 4.2% and 6.3%, and 4% and 5.8% respectively (Quantec, 2012). This illustrates that household disposable income, for these municipalities, has not declined. The other eight municipalities for which this trend is apparent is the City of Cape Town, George municipality, Nelson Mandela Bay metro, ethekwini metro, Rustenburg municipality, Emfuleni municipality and the City of Tshwane. 6.2 DEVELOPMENT IMPLICATIONS In context to the key economic indicators as discussed in this section, with regard to the results of the cost comparison, it is clear that no direct relationship between the economic performance and the levels of development costing is discernible. A few examples to illustrate this point include the Gauteng municipalities other than Emfuleni municipality that do relatively well in terms of economic performance, but are also among the more expensive municipalities in terms of development costs. When considering the Emfuleni municipality which has a low GVA growth, income growth and population growth, but is the 4 th most affordable, it is further apparent that there is no distinct relationship. In some areas though, the results between the economic indicators and the perceived accessibility for development relative to costing and performance, were more compatible. For example, the City of Cape Town is the 3 rd most affordable and development friendly study area, and shows upper-middle to high economic performance among the indicators. Similarly, //Khara Hais municipality is the second best performer with middle to higher growth rates evident. Based on these findings, it is clear that the performance of the economy and the municipal fees that contribute to the cost of development are not easily corresponded. This is as there is no incontestable direct correlation between these indicators. However, should the economic indicators be more development focussed, such as the performance of the local construction sector and development professionals within the development industry such as town planners and engineers be applied, it is expected that a clearer and more discernible correlation would be achievable and evident. 92

94 7. OVERALL STUDY OBSERVATIONS With reference to the findings from each section, the following summary of observations is presented. Relative to the individual cost component and municipality, the municipal services costs of property development within the delineated municipalities vary extensively. It is clear that across the board, municipalities do not have a specific standard applied to cost calculations, as different techniques are employed by the various municipalities to arrive at developmental costing. Due to the variations, it was thus necessary to develop a scoring system that could accommodate the range of costs, and provide a simplified illustration of the results. As highlighted in Table 2-18, the final assessment and ratings for the overall services costs indicates ethekwini municipality as the most expensive municipality and //Khara Hais municipality the most affordable. These results should however be observed alongside the explanations, as there are valid clarifications for these results. Furthermore, the tariffs that were not accessible from the tariff and rates schedules were for connection fees, for which municipalities were mostly unable to provide values. According to the respondents, this was due to too many unknown variables that are unavailable or unanswerable for this hypothetical assessment. Therefore, municipalities cannot provide ball park cost figures for cost aspects such as connection fees, because a site inspection is a prerequisite to compile a cost quotation. Additionally, some of the costs provided do not appear probable, as in some cases, the values appeared overinflated or very low in comparison to others. Nevertheless, the results for the study are applicable and serve as a guideline of cost expectations to developers. Concerning the self-evaluation of each municipality, it is evident that relative to singular circumstances, the challenges and scope of departmental abilities to facilitate property development varies. The information gathered from municipal respondents confirms that in order to create a comprehensive assessment, a study directed specifically to each municipality would have to be undertaken. The information could also not be displayed in a combined format as environments are unique, each with their own challenges. Nevertheless, based on the assessment, the following key challenges faced by municipalities are summarised: Personnel capacity constraints are a key issue within service divisions, administrative and town planning departments. Insufficient funding does not enable all sectors to meet the targets set. The level of educated staff is good, yet there are complaints concerning competency and practical experience in both lower and middle tiers. More than 50% of the responses received agreed that regulations in place are necessary, specifically since there is a consensus among municipal respondents that property developers at times take advantage of the system and the limitations thereof. Some municipalities have cited the presence of certain legislature which incapacitates their ability to rapidly accomplish their responsibilities, thus stymying potential property development. However, respondents did not indicate which legislature or elaborate on this statement. 93

95 Most of the infrastructure development that occurs is due to outdated and unmaintained infrastructure. Projects currently in progress are inclusive of maintenance and replacement of old infrastructure with new. Furthermore, and importantly, a large proportion of the projects are initiated out of necessity due to the need to meet capacity demands or to avoid infrastructure failure. With regard to the chapter that details the perceptions of developers, it is clear from the results that the majority of developer respondents do not hold a high regard for the selected study areas, and thereof, the municipalities enablement of property development. The majority of responses were given to the average rating at 37%, with 30% of the ratings for below average and 27% for bad. As is noted in Table 5-5, no respondents gave the municipalities an excellent rating. Concerning the total service rating and customer satisfaction of property developers, the overall score for all municipalities was 45%. It must be stressed that the costs associated with development may be used as a comparative guideline. Importantly, these results are only relevant for one financial year, and thus, it is recommended that the study be updated annually from 1 July. Concerning the responses from the municipal respondents and developers, because the feedback was subjective, it is recommended that this information be used as a base and not an absolute in calculations for cost estimates. 94

96 8. RECOMMENDATIONS Subsequent to the analysis, the following recommendations have been compiled based on the insight gained from undertaking the various surveys and extensive interaction with municipalities and developers. These recommendations are not intended as critique, but aim to provide possible mitigations to enable both industry players and municipalities to ensure that property development is better managed, promoted and encouraged. This will be to the benefit of both municipalities who would benefit from increased tax revenues and developers with increased profit margins. As discussed in the first part of this study, the discrepancies and extensive variations in unicipal services costs relative to the property development cost indicators informs the need for a more standardised approach to costing and calculation methods. This could possibly include the expansion of the existing circular that is constructed by the treasury, into a manual. The purpose of such a manual would be to recommend universally appropriate techniques and formulae to determine specific costs, as well as stipulate which standard deviations from the recommended techniques are admissible. Due to the unique conduct and environments of municipalities, variations must be allowed, but must be directed by specific criteria and regulations which are applicable to all municipalities. The value of such a standardisation would allow for easier comparison between municipalities, as well as a better understanding by the public on how the tariffs have been arrived at. Similar to itemised billing, a more comprehensive understanding of all the direct and indirect costs incurred to render a developmental service bares the advantage that it could make the public more amenable to pay the fees and tariffs. This is as a more informed understanding of the scope of work related to rendering the service would improve perceptions. The increased transparency would also assist to boost investor and developer confidence in municipalities and their processes. The advantage of a standardised system for developers and specialists, who may have operations within different municipalities, is the saving on time and administrative burdens. This is as familiarity with a standardised system, whereby all parties are aware of the requirements, procedures and policies of development processes will result in the ease of conducting multiple business ventures simultaneously in different regions. This could also be extended to developing standardised application forms regardless of the municipality as the requirements and processes are the same. A standardisation would similarly allow for a greater level of certainty. This would pertain specifically to better financial planning and budgeting. Limitations of unexpected and unforeseen costs are perceived to reduce risks which could make investment in development more inviting and lucrative. An added advantage of standardisation is that it would allow for levelling of the playing field to make municipalities equally competitive and to ensure development is not stymied in any municipality. In the end all municipalities will benefit from this due to economic momentum being generated. 95

97 Unless specific and transparent reasons or a justification for otherwise is provided, all regulation concerning property development should be consistent across all municipalities. This will contribute to equal development and investment allocation. Municipal systems of processes concerning the setting of tariffs should be more transparent. Essentially, the actual reason for the determination of a tariff should be provided in a clear, concise and timely manner to all industry players and other persons upon request. This will dispel potential misunderstandings and lengthy and costly processes. Difficulty to source appropriate development information on costing and other aspects during this assignment caused concern, as it is assumed that developers and investors find it equally difficult to source similar information. It is therefore viewed as imperative that municipalities improve access to information. It is recommended that customer care centres be well trained in terms of developmental enquiries or that a single knowledgeable individual or specific department is dedicated to handle public enquiries on all aspects regarding developmental costing. This is to avoid the public being referred from one individual to the next without making any progress regarding their enquiry. This person or department would also be responsible to provide timely and informative information to questions posed. It is imperative that this person or department is easily accessible during all office hours by various means of communication, including telephone, and personal consultation. Unnecessary delays and financial inaccuracies are often a result of misunderstandings and misleading information, which could ultimately cause development failure or discouragement. This person or department should be knowledgeable to provide reasons and explanations for the costing and setting of a tariff. This would not be necessary should the costing calculations be truly transparent. Related to the above department, there is also scope and potential for municipalities to provide an additional income-generating service in the form of development consulting. Developers and investors alike could agree to pay for such a service where an internal development consultant handles all queries and drives the application or service, ensuring that deadlines are adhered to and applications finalised. Such a consultant would also provide continual progress feedback to the client. Continuous feedback of the progress is imperative, as insufficient feedback is frustrating and often demotivating to investors and developers alike. Municipalities need to be aware of the high costs brought on by delays in approvals, as well as the rendering of services. These costs include, among others, cost of capital (interest), lost opportunity cost and loss of income. The loss of income could be brought on by an inability to start construction on time, but also due to the inability of immediately profiting from a specific use that would generate increased income. To improve the understanding of municipalities, it is recommended that an economic impact study on the quantification of these services costs be undertaken. Such a study will provide a detailed and quantified assessment in terms of the costs of delays. It is perceived that an understanding on the extent of these costs would assist to motivate officials to keep reasonably to realistic timeframes. 96

98 It is the responsibility of both developers and municipalities to ensure that service installation is of acceptable standards and aligned with future forecasted demand. This recommendation stems from municipal experience with poor quality internal services that do not perform optimally and thus result in lost capacity as municipalities have to repair or upgrade these newly installed services. The utilisation of information technology could also be investigated as a possible measure to improve the organisation of submissions and administration. Such a system could be employed to provide customer feedback, service tracking and notifications. A client could log-on to their application profile and track its progress by seeing what components are still outstanding, and by receiving an estimate when completion could be expected. Whilst adding to the overall sophistication of the process, such an IT system could work effectively to reduce administrative inefficiencies, as a well-developed program would undertake the administration processes automatically, therefore leaving no room for human error. An IT system could be used as a monitoring and control mechanism by tracking the number of applications currently in progress by officials, and flagging overdue responses and approvals. This could assist to boost overall productivity and transparency within departments. Similar systems are currently used by the UK town-planning departments. A screenshot of such a system is included as an example. The development of a system appropriate for the South African environment should be investigated in more detail. A universal and representative online IT system could also be developed on a provincial level. This would assist and guide developers in terms of processes, as well as to identify their appropriate local authorities and contact persons. An example of such as system is the Planning Portal hosted by the UK Government. Please refer to their website for more information (http://www.planningportal.gov.uk/planning/). 97

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